Building a Smart Compensation Strategy to Address 2025’s Rising Retention & Engagement Issues

The fight for top talent in the Philippines isn’t slowing down in 2025. With the competition getting intense across Metro Manila and other key regions like Cebu and Davao, HR and business leaders need to think more strategically about how they compensate their teams.

And with 65% of employees feeling underpaid for their skills and value, it’s clear that companies need to offer more than just a paycheck. They need to build a well-rounded compensation system that attracts the right people, keeps them engaged, and makes them want to stay for the long run.

So, what exactly is a compensation strategy, and how can you create one that stands out in 2025?

A compensation strategy isn’t just about setting a salary range. It’s how you decide to reward your employees for their hard work: keeping both their needs and your business goals in mind. This includes:

• Base Salary: The fixed amount employees earn for doing their job.
• Variable Pay: Commissions, bonuses, and incentives tied to performance.
• Benefits: Statutory benefits like SSS, Pag-IBIG, and PhilHealth, plus non-statutory ones like HMO, allowances for things like transportation and internet, and paid time off (PTO) for vacation, sick days, and birthdays
• Equity: Stock options, usually in startups or growing tech companies.
• Non-Monetary Rewards: Flexible hours, hybrid work, wellness programs, and more.

So, what does a solid strategy look like? It considers a few things: fairness within the company, how your pay compares to others in the market, performance at both the individual and company levels, and staying compliant with Philippine labor laws.

Each company has its own strategy, depending on its industry and company structure. If you’re in retail, flexible work options might not work since most employees need to be onsite. But if you’re in tech, where a lot of work can be done remotely, offering hybrid or fully remote options could make more sense.

How Compensation Impacts Employee Retention

When employees feel fairly and competitively compensated for their work, they are more likely to be satisfied, engaged, and stay with your company. On the flip side, if employees feel that they aren’t getting paid what they’re worth, they might start looking for opportunities elsewhere. 

In fact, according to Sprout’s Salary Benchmarking for Success report, which collected over 200 responses, employees with the lowest salaries have the highest attrition rate at 14.23%. 

What does this mean? Low pay leads to dissatisfaction and pushes employees to find better opportunities elsewhere.

On the other hand, employees with higher salaries tend to stay longer. The report found that highly-paid employees have a much lower attrition rate of 7.26%, and this just goes to show that when employees feel valued, they stay longer.

While competitive pay is important, it’s not enough on its own. Companies need a well-rounded compensation strategy that includes non-monetary benefits and employee support programs to maintain employee engagement and prevent burnout.

There’s no one-size-fits-all when it comes to compensation. What works for one company might not work for another, depending on your industry, company size, and what your business is aiming for. Here are some common compensation strategies that work well in the Philippines:

Market-Based Pay Approach

Companies often set pay based on what other businesses are offering for similar roles in the same region (e.g., Metro Manila, Cebu, etc.).

For example, a BPO company in Makati regularly benchmarks its call center agent salaries against industry surveys from the Contact Center Association of the Philippines (CCAP) to ensure they remain competitive and attract a large pool of candidates.

Performance-Based Compensation

This approach ties a portion of an employee’s compensation to their individual, team, or organizational performance. This can include bonuses based on achieving KPIs, sales commissions, or profit-sharing. 

For instance, a real estate firm in Manila offers its sales agents a base salary plus a significant commission percentage for each property sold.

Total Rewards Approach

This holistic strategy considers all aspects of the employee value proposition, including base pay, variable pay, benefits, and non-monetary rewards like career development opportunities, flexible work arrangements, and a positive company culture. 

A good example is a multinational technology company in Taguig that offers competitive pay, health insurance, vacation days, international training, and a collaborative workplace to attract top talent.

Skill-Based or Competency-Based Pay

With this approach, employees are paid based on the specific skills or certifications they have, rather than solely on their job title. This can encourage continuous learning and development.

To illustrate this, a manufacturing company in Laguna might offer higher pay to technicians who acquire certifications in specific machinery maintenance procedures.

Equity-Based Compensation

Common in startups and tech companies, equity-based is a non-cash form of compensation, where employees are usually rewarded in the form of stock, shares, or equity options. 

An example of this approach is a Filipino tech startup that grants stock options to key employees, allowing them to buy company shares at a set price. 

Flexible & Personalized Pay Structures

Flexible and personalized pay structures let employees choose how they want to receive their compensation. 

For example, a forward-thinking HR consultancy in Manila might allow employees to allocate a portion of their total compensation budget between different benefits like increased health coverage, additional vacation days, or contributions to a personal development fund.

To develop a compensation strategy for 2025, businesses must evaluate their financial capacity, industry standards, and workforce needs. To get started, we recommend the following best practices. 

1. Assess organizational goals and workforce needs. Understand your business objectives for the coming year and the talent you need to achieve them. What skills are critical? What are your retention challenges? What kind of culture do you want to build? Your compensation strategy should directly support these goals.
2. Conduct salary benchmarking and market research. Utilize reliable salary surveys specific to the Philippines and your industry. Understand what your competitors are offering for similar roles in locations relevant to your talent pool (e.g., Metro Manila, key provincial hubs). Consider not just base pay but also benefits and perks.
3. Define compensation structure and policies: Based on your philosophy and market data, establish clear salary grades and ranges for different roles. Develop transparent policies around salary increases, bonuses, and promotions. Ensure internal equity by objectively evaluating the value of different roles within your organization.
4. Integrate data-driven decision-making: Don’t rely on gut feeling. You can leverage data analytics to analyze market data, employee performance metrics, and internal salary trends. It allows you to identify pay gaps, forecast budget needs, and gauge the effectiveness of compensation policies. 
5. Ensure compliance and transparency: Stay up-to-date with all relevant Philippine labor laws regarding minimum wage, overtime pay, and mandatory benefits (SSS, PhilHealth, Pag-IBIG). Communicate with your employees about how compensation is determined, including salary, bonus criteria, and promotion policies.

Companies are shifting away from traditional pay models and are learning towards more forward-thinking approaches. Below is a list of the top future compensation strategy trends to watch for in 2025 and beyond. 

Greater Integration of Technology In Compensation Management

Tools like payroll software help managers handle different tasks, including complex calculations for pay raises, bonuses, and incentives. Also, integrating technology in compensation strategy can provide additional flexibility in how you pay employees. For instance, Sprout’s ReadyWage allows employees to access their earned wages before payday.

Additionally, many HR teams integrate a benchmarking tool like Benchmark with their strategy to keep up with salary trends. Using a benchmarking tool helps pinpoint where to invest more to attract top employees, ensure fair compensation, and eliminates the need for expensive surveys and complex wage negotiations.

Emphasis on Work-Life Balance Incentives

In addition to monetary benefits, companies are increasingly offering compensation packages that support work-life balance, including PTOs, mental health days, remote work options, and flexible work hours. This trend provides additional flexibility to employees by helping them better manage their personal and professional lives. 

A growing trend is using gamified rewards to boost engagement and motivation. Companies can implement this using platforms like Advantage Club, which provides tools for rewarding employees with milestone awards, real-time recognition, and wellness programs. It also features Funzone, where employees can participate in games and contests, and Advantage Club Care, which gamifies wellness tracking to keep employees engaged in their well-being.

Increased Focus on Personalized Compensation Packages

Many modern businesses now offer customizable benefits, allowing their employees to choose what suits them best. These packages may include options for healthcare plans, retirement contributions, wellness programs, and even flexible working arrangements. Personalized compensation not only helps improve job satisfaction but they also can boost retention, as employees feel valued and heard.

Greater Pay Transparency

More companies are starting to share salary ranges in job ads and with their teams, and it helps manage expectations right from the start of the hiring process. It also reduces the risk of pay gaps and helps ensure fair compensation across the board. Employees are increasingly expecting this openness, which can also improve trust within the organization.

Personalized and Flexible Rewards

Instead of offering the same benefits to everyone, many companies are letting employees choose what works best for them. This could include options like flexible work hours, different healthcare plans, or extra wellness benefits. Personalized rewards make employees feel more valued and understood, and it shows that your company cares about meeting their diverse needs.

Focus on Skills and Competencies

Companies are starting to focus more on the skills and abilities employees bring to the job. This encourages employees to keep learning and showing what they can do. By tying pay to skills, companies can better match compensation with performance and business needs. It also helps businesses stay competitive by valuing real, measurable skills instead of just how long someone has been with the company.

The Rise of Remote Work Considerations

With more people working remotely or in hybrid setups, companies are changing how they handle pay. Some are adjusting salaries based on where employees live, so pay matches the cost of living in different areas. Companies are also offering benefits like home office stipends or flexible hours to support remote workers. As remote work continues to grow, companies need to adapt their compensation strategies to fit this new reality.

A well-designed compensation strategy isn’t just nice to have; it’s a must for attracting, engaging, and retaining top talent. How can you achieve this? You need to evaluate your current approach, understand your team’s evolving needs, and create a plan that positions you as an employer of choice in the Philippines.

Sprout offers expert insights that can help you design a plan based on your business goals while keeping your team engaged and motivated. With Benchmark, our advanced compensation analysis platform, HR managers gain access to powerful, data-driven insights to fine-tune pay structures. This tool helps you create a fair and competitive compensation strategy that not only enhances employee satisfaction but also drives productivity and reduces turnover. 

For more info on the latest HR trends, explore Sprout’s blog page or visit our website to learn more.