Still Paying Like It’s 1999? The Workforce Is Changing — Compensation Hasn’t

The world of work is being transformed by digitalisation, remote work, skills shortages, automation, and employee expectations that bear little resemblance to those of a quarter century ago. Yet in many companies around the globe, the way we pay people still looks eerily familiar. 

Quick! Can you think of any change in rewards practices in the last 25 years?

Annual merit increases, rigid pay bands, top-down performance ratings, and location-based compensation remain the norm. These models weren’t designed for today's workforce; they were designed for the workforce of 1999, or perhaps earlier! And yet we continue to treat them as if these practices were timeless.

This gap between how people work and how they’re rewarded is becoming a serious business risk.

The Real Barrier: Beliefs, Not Just Systems

The problem isn’t just outdated pay structures. It’s the persistent assumptions behind them:

• That fairness means uniformity.

• That performance is best measured once a year.

• That pay should follow hierarchy rather than skills.

• That benchmarking what others are doing is enough to decide on pay policies.

We confuse common practice with best practice. And we assume that because our competitors haven’t changed, we don’t need to either. This kind of “me-too” thinking is not the way to develop competitive advantage through people.

In a world where work is changing rapidly, compensation must be tailor-made and not copied.

What the Data Already Tells Us

We don’t need to wait for the future to know what’s coming. The shifts are already underway. Here are some examples of what enlightened organisations are doing:

• A tech company replaced fixed bonuses with a flexible “reward wallet,” allowing employees to choose between cash, leave, or learning. Satisfaction and retention rose, with no increase in cost.

• A consulting firm added mentoring and talent development to its performance metrics, linking them to reward decisions. This served to reinforce behaviours that support long-term value.

• A retail chain introduced skill-based pay progression, uncoupling compensation from tenure. As an outcome, they saw an uptick in internal mobility, and increased skill-acquisition by the staff.

• A telecom group used GenAI to model incentive outcomes across regions and roles, thus drastically reducing redesign time and improving employee acceptance.

• A logistics provider moved from individual to team-based incentives after analytics showed solo bonuses were distorting collaboration. The outcome was measurable gains in both quality and engagement.

Note that these are examples of innovative practices that are already happening.

A Call to Action: Diagnose, Test, Prove

If you lead Rewards, now is the time to move from assumptions-based beliefs to data-driven evidence. That starts by:

• Challenging your assumptions: Is merit really driving performance? Are individual bonuses linked to outcomes that matter?

• Using internal data: Run regression analyses, model equity scenarios, evaluate incentive impact across segments. Test even basic things like is pay linked to engagement, or how much additional pay would be required to increase retention. 

• Piloting new approaches: Try skill-based pay in one unit. Redesign incentives for a project team. Measure both HR and business results.

• Building a business case: Use the evidence to speak the language of CFOs, CEOs, and Boards — not just fairness, but value.

Waiting for consensus is a trap. Action backed by data is the way forward.

The Future of Pay Is Strategic, Not Imitative

It’s time to stop copying what others are doing and start asking what your workforce needs to deliver value — today and tomorrow. That requires experimentation, analytics, and the courage to break from the comfort of familiarity and benchmarks.

Compensation is one of your most powerful levers to align talent with strategy. But only if it evolves with the world around it.

1999 was a great year for music.But it’s a terrible blueprint for how to pay people in 2025.