Geopolitical, economic uncertainty is prompting HR leaders to manage pay carefully

As many organizations prepare to head into open enrollment season, external economic pressures influencing their total rewards strategies are still in flux, a recent report suggests.

Some 51% of HR and total rewards professionals said they believed their organizations would see moderate revenue growth prospects this year, while nearly one-third (31%) described signals as mixed or uncertain, according to a Korn Ferry survey fielded in June.

The top external factors survey respondents cited as affecting business growth were geopolitical uncertainty and conflicts (68%), a global economic slowdown (61%), and strong global competition (38%).

But amid uncertainties such as an expanding war in the Middle East and slowing economic growth, total rewards leaders aren’t cutting back entirely on benefits. Instead, they’re “becoming more disciplined, targeted, and capability-oriented in how they manage rewards,” Tom McMullen, a senior client partner with Korn Ferry, told us via email.

Salary growth appears flat. Compensation is one area where total rewards leaders appear to be proceeding with caution in light of current economic uncertainty, as 59% reported “more constrained and tightly managed base salary growth” at their organizations, according to the survey.

Base salary increases across most global markets are expected to stay flat in 2027 or be slightly lower than 2026, suggesting that “employers are still planning to provide broad-based increases but are more conservative about adding to fixed labor costs,” McMullen said.

In practice, this means that employers may lean more heavily on certain strategies to contain costs related to worker raises. They might be taking a closer look at their job architecture, McMullen said, or finding new ways to differentiate how they pay members of the workforce.

A majority (56%) of respondents said their organizations were implementing pay differentiation for top performers, or employees in critical roles. Skills, too, may soon factor into employees’ compensation. Some 47% of HR pros said their organizations were starting to focus more on “increased pay differentiation based on scarce skills.”

Don’t overlook the managers. The success of such changes to compensation often hinges on how well managers communicate them to employees, and the survey shows there’s room for improvement in this area. Just one-third of respondents said they believed employees at their organizations trusted managers to communicate reward decisions fairly, or effectively explain pay decisions.

McMullen said Korn Ferry typically recommends simplifying the messages managers are expected to deliver when it comes to pay decisions, as well as providing “practical talking points and scenario-based training,” and “clear escalation paths for sensitive questions.”

A manager doesn’t need to be an expert on compensation, but rather, a “credible first-line communicator who can explain the organization’s pay principles clearly, consistently, and with confidence.”