Salary budgets
Projected salary increases ranged between 3.0% and 3.4% across the different employee levels, with a median salary increase of 3% (2024: 3.5%). Increases above 4.5% were rare and mostly limited to CEO and entry-level roles.
Health Care and Utilities organisations reported the highest workforce pay increases for the wider workforce (excluding CEOs) at 4.0%, while Basic Materials organisations lagged at 2.5%. At the CEO level, the highest median increases were observed in Utilities, Industrials and Consumer Discretionary organisations.
Nearly 50% of participants indicated making higher salary increases for top performers, recognising the importance of retaining key talent and rewarding strong performance. Targeted increases were also made to critical skills, particularly in IT, Technical, Cyber, and Digital roles, reflecting the acute competition for these skills amid accelerating AI and technology transformation.
Pay compression continues to be a challenge for many organisations, particularly at lower grades, driven by increases in the National Minimum Wage and budget constraints. In response, organisations are reviewing their pay bands and job architecture to ensure pay bands are appropriately aligned and calibrated. While the majority are also making targeted salary adjustments, a smaller proportion are addressing governance policies and recruitment processes which can often sustain and contribute to pay compression over time.
What tools are you using to address your pay compression?
Evolving benefit programmes
The majority of benefits saw increased adoption in 2025, with offerings related to flexible working arrangements, wellbeing and enhanced leave policies being widely adopted. Many organisations are also increasingly prioritising benefits tied to skills and professional development, including providing access to online learning platforms and training courses. This approach equips employees to adapt in a rapidly changing workplace while strengthening organisational agility and competitiveness.
The importance of skills in the future world of work
Employees consistently rank skills development among their top motivators, a finding echoed in PwC UK's 2025 Hopes and Fears Survey. Yet only 1 in 4 organisations implement skills-based pay approaches. Organisations are investing heavily in professional development, but are not reflecting this in their employees' reward structures. As competition for critical skills intensifies, organisations that explicitly reward the acquisition and development of these key skills will gain a distinct advantage in attracting and retaining top talent.
Pay transparency
The EU Pay Transparency Directive, proposed expansion of pay gap reporting and evolving employee expectations, are driving an increased focus on pay equity and transparency within organisations, with 79% of organisations now disclosing to employees how pay and incentive decisions are being made.
EU Pay Transparency Directive
49% of respondents report being affected by the Directive, with the June 2026 deadline now fast approaching. Readiness, however, varies widely. Some organisations have made meaningful progress, reviewing job architecture, conducting readiness assessments, and developing tailored compliance roadmaps while others remain in early evaluation stages. The gap between awareness and action highlights a broader challenge: this foundational work takes time.
How prepared is your organisation to comply with the EU Pay Transparency Directive?
The Directive's impact will extend beyond those legally required to comply. As affected organisations adapt their reward frameworks, employee expectations for pay transparency will rise, a trend we are already seeing. Whether directly affected or not, organisations that treat this as an opportunity to strategically review their approach to reward will be better positioned for the future.
Proposed ethnicity and disability pay gap reporting
Unlike gender pay gap reporting, ethnicity and disability pay gap reporting remains less developed. Only a minority of organisations indicated measuring these pay gaps internally, and very few reporting externally, reflecting the current lack of regulatory requirements. The proposed Equality (Race and Disability) Bill, which would mandate ethnicity and disability pay gap reporting, represents a significant shift that is likely to accelerate efforts to collect, analyse, and disclose this data.
Reward priorities for 2026
The focus on job architecture and the integration of HR technology and AI reflects a wider trend to modernise reward frameworks, enhance competitiveness in an evolving labour market and streamline reward management. Regulatory compliance remains a key priority, driven by the EU Pay Transparency Directive, Employment Rights Act and proposed enhanced pay gap reporting mandates. Although upskilling, skills-based pay and cost reduction receive overall less prioritisation, they are likely embedded within broader strategic initiatives.
