6 in 10 Indian employers are keen to explore the potential of AI for employee rewards and compensation strategies over the next three years, as per the findings of EY ‘Future of Pay 2025’ report. The third edition of the report explores India’s dynamic talent landscape driven by technological advancements, shifting employee expectations, and the growing importance of flexibility.
The report reveals that India Inc. is set to witness an average salary increase of 9.4% in 2025, a slight moderation from the 9.6% recorded in 2024. Overall employee attrition rates dropped from 18.3% in 2023 to 17.5% in 2024.
Smart pay revolution: AI-driven and real-time compensation
As per the EY report, 60% employers are looking to leverage AI across critical areas such as salary benchmarking, real-time pay equity analysis, and customizable benefits for employees. The report reveals that firms are poised to transition from manual pay benchmarking and fixed incentive models to AI-driven predictive analytics and real-time salary adjustments by 2028. With AI-powered compensation platforms, companies can now personalize benefits, optimize reward structures, and ensure pay equity across diverse workforce demographics. Furthermore, blockchain and smart contracts are emerging as key enablers of secure, transparent, and automated payroll processing, particularly for cross-border compensation.
Reflecting on the key findings, Abhishek Sen, Partner and Leader, Total Rewards, HR Technology and Learning, People Consulting, EY India said “The EY ‘Future of Pay 2025’ report provides critical insights into India’s evolving compensation landscape, highlighting the need for AI-driven compensation strategies, hybrid work models, and strategic long-term incentives. While salary increments remain steady, organizations must go beyond traditional pay structures to attract and retain top talent in the near future. Flexibility and financial security are becoming core drivers of employee satisfaction. As organizations adapt to these changes, the findings serve as a valuable guide for HR leaders, business executives, and policymakers in shaping India’s next-generation workforce strategies.”
The report reveals that AI is reshaping compensation strategies in three key ways:
- Optimized pay structures: Adoption of AI predictive models in pay decisions that factor in employee life stages, job preferences, and real-time market trends, is set to accelerate over the next 2-3 years.
- AI-Powered upskilling: Firms are increasingly investing in AI-driven learning platforms that offer hyper-curated modules, equipping employees with in-demand skills for evolving job roles.
- Demand for AI talent: Companies are increasing consideration for AI-skilled professionals, with roles like prompt engineering and machine learning seeing growing demand. Employees also anticipate AI transforming their careers, driving the demand for upskilling and adaptability.
Sector-wise salary trends: E-Commerce, Financial Services and GCCs lead growth with over 10%+ hikes
As per the report findings, the e-commerce sector is expected to see the highest salary increments of 10.5% in 2025, driven by the rapid expansion of digital commerce, rising consumer spending, and technological advancements. The financial services sector follows closely, with projected salary increments of 10.3% in 2025, driven by demand for fintech specialists, digital banking experts, and cybersecurity professionals.
The report also highlights salary increments in Global Capability Centres (GCC), projected at 10.2% in 2025, up from 10.0% in 2024, as companies continue investing in digital transformation and automation. However, IT and IT-enabled services sectors are experiencing a slowdown in salary growth, impacted by automation, cost optimization, and hiring slowdowns. IT sector salary increments are expected to decline from 9.8% in 2024 to 9.6% in 2025, while IT-enabled services will see a moderation from 9.2% in 2024 to 9% in 2025, underscoring a strategic shift towards efficiency and leaner workforce structures. Meanwhile, automotive, pharmaceuticals, and manufacturing sectors continue to display steady compensation trends.
Changing employee priorities
The report findings cite that competitive salaries alone are no longer sufficient for retention. Employees highly value flexible hours, ability to choose in-office days and remote work options. As per the report, 90% of respondents work in hybrid setups, combining in-office and remote work and 50% of respondents’ employers reported growing interest in gig and temporary roles, highlighting a demand for flexible employment models. As a result, 65% organizations believe that flexible work options play a role in shaping talent acquisition strategies.
In a highly competitive talent market, 35% companies are facing challenges with employee retention. The report emphasizes that organizations need to adopt hybrid work models, flexible hours, and additional time-off benefits to enhance employee retention.
Role of equity-based compensation in talent retention
As per the report, ESOPs (Employee Stock Ownership Plans), RSUs (Restricted Stock Units), and SARs (Stock Appreciation Rights) have seen increased adoption, rising from 63% in 2020 to 75% in 2024. These incentives play a crucial role in aligning employee performance with organizational goals. At 71%, ESOPs emerged as the most prevalent long-term incentive to balance talent retention, performance alignment, and wealth creation. Long-term incentive plans (LTIPs) are also a key part of executive pay structures, with nearly 40% of organizations offering them. The report findings indicate that these incentives remain largely focused on executives.
CEO compensation trends
According to the report, CEO pay in Nifty50 companies surged by 18-20% from 2023 to 2024, reflecting a significant increase in executive compensation. Notably, promoter CEOs earn 30-40% more than professional CEOs, with an increasing preference for internal promotions, as 40-45% of CEO transitions in the past five years were internal. The report highlights that 70% of CEO compensation is performance-linked, with incentives tied to business growth, ESG (Environmental, Social, and Governance) goals, and long-term sustainability.
Employee attrition shows decline: rates drop from 18.3% in 2023 to 17.5% in 2024
The steady decline in attrition from 18.3% in 2023 to 17.5% in 2024 underscores a positive trend driven by economic stability, proactive retention strategies, and shifting employee priorities. Although voluntary attrition has declined from 15.2% (2023) to 14.1% (2024), organizations still require a continuous focus on retention strategies like career growth opportunities, competitive pay, and flexible work policies.
