The State of Pay: Rethinking Compensation and Benefits for an Evolving Workforce

Workforces are changing rapidly. Millennials and Gen Z now comprise a majority of the global workforce and are projected to approach the three-quarters mark within the next five years. While no generation is a monolith, shifting expectations around work-life balance, career development, and flexibility are influencing how companies compete for talent.

For their part, Gen Z and millennial employees are known for placing less value on titles, "climbing the corporate ladder," and traditional forms of long-term compensation than their Generation X or baby boomer predecessors. Instead, those newer generations may prioritize finding respect, dignity, belonging, and meaning in the workplace in other ways—including through flexibility and remote work, thoughtful and constructive feedback from mentors and supervisors, training and development opportunities, recognition for contributions to the team, and an understanding of how their efforts promote corporate values and goals. They may also value enhanced workplace benefits such as financial wellness programs, company-subsidized life concierge programs, and student loan repayment opportunities more than compensation increases. 

In light of these changes, boards and management should reexamine compensation and benefits programs with a focus on long-term corporate goals, legal guardrails, and practical alignment with evolving employee needs. Human capital is central to long-term value creation, and compensation and benefits offerings significantly affect employee health, productivity, engagement, and retention. Workforce programs and policies should be regularly assessed to determine whether existing programs remain fit for purpose and how they may be adapted to better support current and future workforce needs. The goal is not to design to employee or generational stereotypes, but to use data-driven decisions to support human capital development while upholding core corporate values. Both the board and management should expect to participate in these evaluations; management typically owns non-executive programs, while boards and compensation committees focus on executive pay and overall human capital strategy. 

Framing the Discussion: Where to Start

Although the differences between workforce generations may at times be stark, productive conversations about compensation and benefits should avoid assumptions grounded in generational stereotypes. Instead, companies should build on evidence. Employee surveys, market benchmarking, and utilization data can clarify which offerings motivate different segments of the workforce. Early engagement with advisors can help maintain the right tone and avoid approaches that could be perceived as dismissive or discriminatory. Overall, boards should focus on how compensation and broader workforce strategy can advance organizational goals through improved attraction, motivation, development, and retention. 

Navigating Competing Interests: Making it Work

An assessment of workplace practices versus employee preferences may often uncover gaps between what employees value and the organization's current practices, which may vary among companies based on industry, business model, and geography. One experience, however, is sure to be common: boards and management will increasingly face tough choices about which interests they will prioritize in the short and long term and how they will resolve differences between employee interests and other organizational goals. The following principles can help guide leadership's evaluation:

• Recognize that the core needs of employees—financial security, respect, dignity, belonging, and meaningful work—are consistent over time. What changes is the relative priority and the form in which those needs are met.
• Seek opportunities to harmonize employee and corporate interests to create competitive advantage in hiring and retaining key employees. 
• When employee interests can't be reconciled with shareholder value or core corporate values, prioritize long-term corporate interests.
• Approaches will vary among companies. Some will refine existing programs and emphasize culture and communication. Others will make more significant changes to employee reward systems and workplace policies. Some may conclude that current programs are already well-aligned. In all cases, leadership should allocate time and attention to ensure compensation and benefits support long-term organizational health. 

Creating a Plan: The Critical Elements

Effective program design starts with four questions:

• Who: Companies must start with a clear understanding of the current workforce and anticipated changes over the next five to 15 years. What challenges do current employees face, as compared to the employees of last year or decades past? How have employee demographics, economic circumstances, and social circumstances changed? What are the major life experiences of your employee population, and how do they shape workers' views of the workplace, the economy, and corporate life? Here, it is critical to inform decisions using data rather than stereotypes. 
• What: Leadership should also identify what motivates different employee segments. While all employees value respect, belonging, and growth opportunities, earlier-career employees may place greater emphasis on flexibility, development, real-time feedback, and recognition, and may prefer certain benefits or variable pay elements over traditional long-term structures. While no group is homogeneous, inclusive offerings can have broad appeal.
• Why: If current compensation and benefit structures are not achieving desired outcomes, consider the reasons. Do workplace programs support non-work goals such as homeownership, balance, health, and financial wellness? What economic and demographic shifts affect employees the most, and what forces shape employee expectations? 
• How: Use the assessment to recalibrate rewards and workforce strategy to align employee motivation with business objectives. Translate insights into actionable program changes that support talent attraction, retention, performance, and satisfaction. 

Aligning Needs and Solutions

Well-designed programs connect employee needs with business imperatives. Consider how your workplace practices align employee and employer interests, including the following:

• Financial security and growth paired with cost management and workforce stability. Employees' general financial security can be supported by financial wellness programs, tuition assistance, access to financial planning, homebuying support, and offering some flexibility when dividing compensation between cash and equity alternatives.
• Purpose, recognition, and development aligned with performance and talent pipelines. Actions designed to enhance employee development may include targeted training, mentorship opportunities, thoughtful feedback, clear communication of mission and values, supportive leadership behaviors, and structured early opportunities to lead and present.
• Flexibility balanced with collaboration and culture. Workplace culture can be enhanced through high-value, in-person interactions, thoughtfully designed office space and amenities, and opportunities for flexibility in work patterns based on role needs and compensation.
• Life management needs aligned with focus and engagement. Many workplace benefits have a direct impact on employees' non-work lives; consider benefits that address distinct employee populations, such as childcare support, concierge services, wellness resources, student loan assistance, and pet insurance. 

For executives, performance-based incentives can reinforce workforce priorities by tying a portion of pay to specific workforce goals, including improved retention, completion of priority initiatives, or improved engagement. 

Considering the Guardrails

Of course, employers must consider the legal implications of any changes to workforce policies and programs—from broad anti-discrimination and equal employment opportunity concerns to the specific terms of compensation and benefit programs or employment contracts. Close coordination with legal counsel, human resources, finance, and external advisors is essential to identify risks and design compliant solutions.