60% of Indian employers plan to use AI for salary benchmarking, rewards: EY

India Inc. expected to witness average salary increase of 9.4% in 2025, says wide-ranging report

As many six of 10 employers in India plan to use artificial intelligence (AI) for employee rewards and compensation strategies over the next three years, according to a report by EY.

 

As many as 60 per cent of employers are considering AI in salary benchmarking, real-time pay equity analysis, and customisable benefits for employees. The EY Future of Pay 2025 report said that companies are transitioning 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 personalise benefits, optimise reward structures, and ensure pay equity across diverse workforce demographics.

   

“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, organisations must go beyond traditional pay structures to attract and retain top talent in the near future,” said Abhishek Sen, partner and leader, total rewards, HR technology and learning, people consulting, EY India.

 

Flexibility and financial security are becoming core drivers of employee satisfaction, he added.

 

Salary hikes

 

India Inc. is expected to witness an average salary increase of 9.4 per cent in 2025, a slight moderation from 9.6 per cent in 2024. Overall employee attrition rates dropped from 18.3 per cent in 2023 to 17.5 per cent in 2024, according to the report.

 

E-commerce sector is expected to see the highest salary increments of 10.5 per cent 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 per cent in 2025, driven by demand for fintech specialists, digital banking experts, and cybersecurity professionals.

 

The report also highlights salary increments in global capability centres (GCCs), projected at 10.2 per cent in 2025, up from 10 per cent in 2024, as companies continue investing in digital transformation and automation.

 

However, information technology and IT-enabled services sectors are experiencing a slowdown in salary growth, impacted by automation, cost optimisation, and hiring slowdowns. IT sector salary increments are expected to decline from 9.8 per cent in 2024 to 9.6 per cent in 2025, while IT-enabled services will see a moderation from 9.2 per cent in 2024 to 9 per cent in 2025, underscoring a strategic shift towards efficiency and leaner workforce structures.

 

Automotive, pharmaceuticals, and manufacturing sectors continue to display steady compensation trends.

 

Changing employee priorities

 

The report found that competitive salaries alone are no longer sufficient for retention. Employees “highly value” flexible hours, the ability to choose in-office days, and remote work options. As per the report, 90 per cent of respondents work in hybrid setups, combining in-office and remote work, while 50 per cent of respondents’ employers reported growing interest in gig and temporary roles, highlighting a demand for flexible employment models.

 

As a result, 65 per cent of organisations believe that flexible work options play a role in shaping talent acquisition strategies.

 

The report also highlights increased adoption of employee stock ownership plans (ESOPs), restricted stock units (RSUs), and stock appreciation rights (SARs), rising from 63 per cent in 2020 to 75 per cent in 2024.

 

These incentives play a crucial role in aligning employee performance with organisational goals. At 71 per cent, 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 per cent of organisations offering them.

 

The report findings indicate that these incentives remain largely focused on executives.

 

CEO compensation trends

 

According to the report, salaries of chief executive officers (CEO) in Nifty50 companies surged by 18-20 per cent from 2023 to 2024, reflecting a significant increase in executive compensation. Notably, promoter CEOs earn 30-40 per cent more than professional CEOs, with an increasing preference for internal promotions, as 40-45 per cent of CEO transitions in the past five years were internal.

 

The report highlights that 70 per cent of CEO compensation is performance-linked, with incentives tied to business growth, environmental, social, and governance (ESG) goals, and long-term sustainability.