Attrition & Retention
Stretching Pay Further: The 3 Pressures Driving Total Rewards
With merit increase budgets under inflationary pressure and little change to Australia’s gender pay gap, is it time to flip our thinking on total rewards?
August 04, 2025
Should every employee get a pay rise—or just your top performers? With inflation easing but wages still lagging, Australian employers are under pressure to stretch merit increase budgets further, while keeping their best talent engaged. Add to that the global push for pay transparency and it’s clear: rewards strategies need a reset.
Australian employers are forecasting merit salary growth of 3.5% in this year’s Compensation and Benefits Survey, which analyses detailed payroll and benefits data across 700 organisations and 400,000 Australian employees. That’s ahead of inflation, which eased to 2.1% in May 2025, but is down on the previous year’s movement of 4%.
This isn’t much comfort for employees feeling their salaries squeezed by several consecutive years of negative real wage growth. Our Workforce 2025 Survey found 75% of Australian workers are worried about the cost of living outpacing their current salary, and one in three also believe their salary and benefits are below the value of their skills.
Total Rewards (TR) leaders are now juggling three priorities that can’t be ignored:
- The urgent need to modernise systems and skills architecture to leverage AI’s full potential
- Growing demand for personalised, meaningful reward programs
- A shift to pay disclosure best practices and compliance
Why Only 1 in 4 Employers Use AI in Rewards
Despite AI’s potential to transform compensation strategy, most TR teams are still early in the journey. In our Global Total Rewards Pulse Survey, 78% of Australian leaders said they’re yet to adopt AI in their rewards function.
Farhan Mahmood, head of Korn Ferry’s Total Rewards and Organisation Strategy Digital Solutions for APAC, sees this as a missed opportunity. “There is so much potential for more data-informed decisions, including external pay benchmarking, predictive analytics, and performance goal setting using AI,” he observes.
Globally, fewer than 25% of organisations currently use AI in their total rewards applications. But they agree it has the potential to improve efficiency, uncover workforce trends, and provide data-driven and bias-free insights.
Mahmood says the business case for AI in rewards is strong. “Improving pay equity analysis and benchmarking is a quick win. Using AI would save time, improve accuracy, and optimise costs. It can also automate a lot of routine tasks like benefits admin or updating job descriptions,” he says.
Thinking longer term, predictive analytics could collate insights and trends across interconnected HR processes—from performance reviews and success profile assessments to coaching interventions and incentives.
“I think integrating AI into goal setting and performance management could be a game-changer,” says Mahmood. “But you can only reap the full benefits if you can plug in all the data—and to do that, all your data needs to be digitised on a single platform.”
Segment Smarter to Stretch Pay Further
The best rewards strategies aren’t just about salary—they’re about fit.
With the aid of AI analytics, total reward leaders can now re-think personalised rewards down to the individual, rather than by broad employee groupings. “For critical roles, data-driven segmentation can help you leverage non-monetary rewards like wellbeing stipends, flexible hours, mental health benefits, or even housing allowances,” suggests Mahmood.
Those critical roles include construction and energy trading, where pay differentials are substantial. Employers are paying an extra 13% for energy trading roles and 8% for construction skills, and the oil and gas sector overall has a pay differential of 26%, But Mahmood cautions an outsized pay bump to fill supply gaps is a short-term fix.
“We’re seeing more upskilling and reskilling in the utilities and natural resources sectors,” he says. This, coupled with non-financial rewards like housing subsidies, could be a smarter use of pay budgets.
Transparency Alone Won’t Close the Pay Gap
A single source of digitised data can also improve compliance accuracy and efficiency. And while mandatory reporting has made the gender pay gap more visible in Australia, that gap is proving stubborn to shift.
Mahmood says it is disappointing to see how little progress has been made in closing that gap. “Given the increase in communication and transparency at a macro level, we were hoping to see the numbers shift. But our compensation survey analysis found men make, on average, 12.7% more than women.”
Australian women also earn 3.7% less than their male colleagues at the same level—and 2.6% less for the same role. “It’s a systemic issue that will take more than band-aid solutions like pay audits,” says Mahmood. He believes it’s time to look at the root cause and build equitable structures from the ground up.
“We need to map equitable career journeys from an early stage. Do people have the right roles mapped to the right levels, irrespective of gender, race, or any other demographic factor? Only then can we plug in recruitment and promotion processes.”
Build Equity and Efficiency Into Your Pay Strategy
Within the next two years, more than half of employers globally expect to reskill their workforce for roles impacted by AI. That is likely to include rewards teams.
With Total Rewards functions still in the early days of AI adoption, there could be a first move advantage for leaders who want to make more data-driven pay equity decisions. There’s also the efficiency upside of automation, and the potential to personalise every aspect of the employee experience—from total rewards to performance management.
But first, you need a strong foundation. AI is only as good as the data it has to work with—so check you have the right information, structures, skills and systems in place before taking the next step towards a future-ready rewards strategy.
Learn how Korn Ferry Pay can help you modernise your total rewards strategy.
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