As a career advisor for early-career professionals, I stay current by doing one thing repeatedly: I ask employers what challenges they’re facing with their young talent, and I ask young professionals what’s frustrating them at work. The gap between these two perspectives tells me so much.
Recently, I got this feedback from an HR leader:
” We’re finding that newer talent expects larger increases in compensation, and they expect to make big gains more quickly and consistently. This is also exacerbated by the many laws around pay transparency.”
Kudos to my HR colleague for approaching the situation with curiosity; not everyone does.
Rather than exploring this issue more deeply, some employers are still saying things like: “These young employees want promotions too fast. They’re asking for raises before they deserve them. Gen Z don’t understand that they need to wait their turn.”
I invite you to look at the situation through a different lens. What if the way career progression has worked for the past fifty years has fundamentally broken down.
The Broken Paradigm
For the past fifty years, corporate compensation strategy operated on a consistent set of assumptions:
Loyalty could be purchased with incremental raises and occasional promotions. Give someone 3-5% annually and they’d stick around.
Career progression was linear and patient. If you paid your dues, climbed the ladder, and worked hard, in ten years you’d have built something significant in skills and compensation.
Financial security came from tenure. Stay with one company long enough, and you’d fall under the higher bonus formula, get stock options and have amassed a solid base pay amount.
Every single one of these assumptions are falling apart.
Today’s Environment.
Because the cost of living has far outpaced the size of salary increases, a significant portion of Gen Z workers have less real income compared to other generations. They feel an economic pinch; approximately half say they would find a new job if they weren’t given a raise. What some see as greed can also be considered a rational economic calculation given the economy today.
Research shows the average starting salary for a 2025 Gen Z college graduate is about $65,000 per year (which is about 10% higher than Millennials got in 2005 when they started working). However, the costs of rent, education, and basic needs have outpaced wage gains. For instance, in 2005, Millennials spent about 23% of their monthly income on rent. Gen Z now spends 30% on average. Monthly student loan payments have increased by 41% (inflation-adjusted) compared to 2005 when Millennials began to work.
Looking at these facts makes it clear why Gen Z is so focused on salary increases. There is a math problem.
I acknowledge that figuring out how to address Gen Z’s situation is incredibly difficult. I believe it may require restructuring systems that were designed for a workplace that no longer exists.
Traditional Solutions Feel Patronizing
When I see advice in HR periodicals about Gen Z compensation, it usually falls into three categories:
“Show them the ladder.” Publish transparent career frameworks. Communicate salary ranges. Explain how progression works. The assumption is that Gen Z doesn’t understand the system. They understand it perfectly; they just reject it as too slow and too risky.
“Give them micro wins.” Create intermediate titles. Break roles into micro-levels (Analyst, Senior Analyst, Analyst II). While this may flatter the ego, it’s not solving the problem.
“Teach them patience.” Tell them their expectations are unrealistic. Explain market constraints. Help them understand that “real” career progression takes time. In other words, tell them to accept less and wait longer while their rent goes up and their student loan payments restart.
All of these approaches will eventually fall short because none of them address the core misalignment. Traditional compensation structures assume a stability that Gen Z has never experienced and a timeline that makes no economic sense for them.
Some Ideas
If you’re genuinely trying to retain Gen Z talent, and you should be, because they’re going to be over 30% of the workforce in a year or two, I have some ideas about how to approach this differently. Think of these as “thought experiments” to begin to generate new ideas.
- Focus on Project-Based Bonuses Rather Than Annual Increases
Merit budgets of ~3% are structurally inadequate because they can’t reward actual performance meaningfully. Think about shifting budget allocation toward performance-based project bonuses, skill acquisition payments, and spot awards. If a young worker delivers exceptional work on a critical project, paying them a $3,000 bonus immediately may have more impact than waiting all year for a small raise.
- Design for Skills, Not Hierarchy
Gen Z prioritizes advancement opportunities and skill development more than older generations did. A new compensation/promotion model could reward skills gained and impact delivered on a shorter timeline. So, employers might consider creating pathways to higher compensation within 18-36 months based on enhancing existing roles when new skills are gained.
Gen Z retention is strongly tied to professional development opportunities. Employees who have access to upskilling programs show substantially higher engagement. But development without mobility is just training your employees for your competitors.
- Front-Load Early Career Compensation Growth
If you use an annual review process, raising the pay increase percentage for lower-level employees would be an interesting idea to model. A larger percentage salary increase in the first few years would go a long way to boost retention amongst Gen Z hires. Run the numbers and see if you can give higher percentage increases in years 1-2. Smaller percentage raises in subsequent years may not be an issue because many early career folks will be promoted by year 3 or 5 and that will add to the base salary. Something creative may allow you to align the payout timing with the current economy and Gen Z’s financial needs.
Fix Pay or Tolerate Side Gigs
Research indicates that a significant portion of Gen Z freelancers working full-time jobs also have a side gig. In a survey of more than 800 Glassdoor Community members, the majority said their main driver for having a side hustle was to boost income (which bridge the gap between traditional entry level pay and the cost of setting up their adult lives). Many respondents also said they have a side gig to have a backup plan as a safety net. Higher pay for junior employees could reverse this trend.
It is unclear whether gig jobs decrease employee productivity, but it is clear that moving forward, we are going to need to come to grips with the current economy and then new opportunities and requirements it creates.
Taking Action
HR leaders are stuck between economic constraints they can’t control (budget limitations, market pressures, board expectations) and a generation that don’t want to accept the social contract previous generations acknowledged.
This is a profound shift, and change is messy precisely because it requires abandoning systems that worked. We may be approaching the point where incremental adjustments are not adequate.
I am a believer in finding solutions before problems become acute.
References
AEEN. (2025). Generation Z continues to challenge the traditional work environment: Here’s how leaders can adapt. https://www.aeen.org/generation-z-continues-to-challenge-the-traditional-work-environment-heres-how-leaders-can-adapt/
Bank of America Institute. (2025, November 10). Paycheck to paycheck: Slowing but growing. https://institute.bankofamerica.com
CAKE.com. (2025). The Gen Z effect and the workforce evolution: 2025 statistics. https://cake.com/empowered-team/gen-z-workforce-statistics/
Checkr. (2025). The future of work: Generational insights on the modern workplace. https://checkr.com/resources/articles/future-of-work-2025-report
Consumer Affairs. (2025, July 2). Comparing the costs of generations. https://consumeraffairs.com
Forbes. (2025, May 4). Salary shock for Gen Z graduates: What to expect in entry-level pay. https://forbes.com
Fortune. (2025, October 29). America’s flatlining income growth is hitting Gen Z the hardest. https://fortune.com
Fuel50. (2025). What makes a good internal talent mobility strategy? https://fuel50.com/2025/04/internal-mobility-strategy/
HR Executive. (2024). To win with Gen Z, HR must break these old employer-employee paradigms. https://hrexecutive.com/to-win-with-gen-z-hr-must-break-these-old-employer-employee-paradigms/
LinkedIn Learning. (n.d.). What is internal mobility and how to get it right. https://www.linkedin.com/business/talent/blog/learning-and-development/what-is-internal-mobility-and-how-to-get-it-right
Newsweek. (2025, May 28). Gen Z salary expectations for first job surge from 2 years ago. https://newsweek.com
Sequoia One. (2024). Gen Z salary and benefits expectations for startups. https://one.sequoia.com/2024/04/gen-z-salary-and-benefits-expectations-startups-must-know/
The Interview Guys. (2025, November 13). The Gen Z vs millennial salary gap: Which generation is actually better off? https://blog.theinterviewguys.com
