If you’re a CFO or CHRO at a startup or investor-backed company, you’re not imagining it. You’re working with a new talent playbook and what worked in 2023 looks almost old-fashioned in 2025.

The forces shaping the market: AI is wiping out entry-level jobs while creating a feeding frenzy for specialized talent. Healthcare costs are about to hit their highest levels in 15 years. And after years of “work from anywhere,” companies are calling people back to the office.

Each of these trends on its own would be enough to spark change, but they’re converging to create one massive challenge that’s forcing employers to completely rethink how they structure compensation, benefits, and workforce strategy to control costs and stay competitive.

The companies that are figuring this out aren’t tackling these issues one by one. They’re realizing that all people spend is connected — your benefits choices impact your ability to compete for your talent, while your office policy affects your compensation needs.

To understand how these dynamics are playing out in real time, let’s turn to the numbers.

Here’s a closer look at how each of these factors is shaping compensation and benefits strategies, drawn from Sequoia’s 2025 Total Compensation and Benefits Market Insights report. The new resource compiles insights from nearly 2,000 investor-backed companies, representing more than 150,000 employees.

AI is Redefining Roles and Reshaping Teams

Here’s the most brutal reality: If you’re competing for talent against AI companies, you’re probably losing. It’s not because they have deeper pockets. They’re playing by completely different rules.

Take refresh equity, for example. According to Sequoia’s report, AI and machine learning companies are offering equity refreshes to non-executives much earlier than companies in other industries — often before they hit 100 employees. This highlights that AI and ML companies are thinking beyond attracting talent and are putting retention strategies in place early, especially when mid-level engineers and research staff are as scarce and strategically valuable as leadership talent. The demand for AI expertise is so high that companies simply can’t afford to lose it.

Healthcare Costs Are Climbing Fast

Healthcare has always been one of the most unpredictable components of people spend, and the next two years will be no exception. Mercer projects that even after cost-reduction measures, total health benefits spend per employee will rise 6.5% in 2026 — the highest since 2010.

Many employers are already preparing by shifting costs to employees, tightening controls on high-demand specialty drugs, and rethinking plan design.

If you’re a smaller company, you’re getting hit the hardest. Companies with fewer than 100 employees are spending more on healthcare benefits relative to payroll, while larger employees are scaling back. This ties to hiring trends. Larger companies are moderating headcount or growing payroll faster than benefits spend, while smaller ones are investing in richer healthcare benefits to stay competitive, often because their salary and equity budgets are limited.

Here are some other ways companies are controlling healthcare costs, according to Sequoia’s report:

  • 34% of companies with 500 to 999 employees increased employee premium contributions and cost sharing this year.
  • 30% of companies with 1,000 to 2,499 employees added clinical controls on GLP-1 drugs to manage pharmacy costs. The percentage goes up to 46% for companies with a headcount over 2,500.

Employees Are Heading Back to the Office

Remember when everyone was declaring in-office work dead? Those days are gone. In 2025, 75% of companies with 500 to 999 employees now require in-office days, up 10% from the previous year. Fully remote work arrangements become rarer as companies grow, with only 5% of companies with more than 2,500 employees offering fully remote work arrangements.

Of those who require in-office days, smaller companies offer the most leeway — 57% of companies with fewer than 50 employees offer fully flexible schedules. As companies grow, they begin to mandate which days employees must work in the office. This is likely because smaller companies use workplace flexibility to compete against bigger companies who can draw and retain talent with bigger comp and benefits budgets.

What Companies Are Doing to Ease the Pressure

Some companies are making surgical adjustments to balance market forces. Here’s how:

Getting serious about pay equity early

According to our report, 80% of companies with under 100 employees have established pay ranges, up from 50% the previous year. As must-have tools for structuring fair and consistent pay, pay ranges help companies meet the demand for pay equity from both employees and regulators.

Another advantage: With pay ranges, companies can benchmark roles more effectively, helping them become more strategic about how they’ll target the market.

Embracing flexible benefits

Lifestyle spending accounts (LSAs) are employer-funded accounts that reimburse employees for certain expenses such as childcare, gym memberships, or mental health apps.

Now offered by 28% of companies with 500 to 999 — up 10% from the previous year — LSAs are becoming a popular way to invest in employee health without committing to rising healthcare or vendor costs. They also simplify benefits management and give employees more flexibility to choose programs that matter most to them.

Simplifying parental leave policies

In a move toward greater equity and simplicity in leave design, more companies are offering a single parental leave policy for all parents — birthing and non-birthing alike — with the same pay rate, duration, and eligibility.

In 2025, 59% of companies offer a single policy, compared to 55% in 2024, and 53% in 2023. While simplified policies help recruit and retain caregivers and mid-career talent, they’re also easier for companies to administer, freeing up resources for other programs.

Get the Full Report

People spend accounts for over 75% of total expenses at most companies. Getting the balance of comp and benefits right doesn’t just improve employee satisfaction, it frees cash flow and affects your ability to raise funding and grow sustainably. The companies that adapt their people spend strategy to the new realities of the market won’t just survive 2025, they’ll turn it into a competitive advantage.

To see all the data, including insights on retirement and global wellbeing programs, download the 2025 Total Compensation and Benefits Market Insights report.

Partner with Sequoia to Deliver on Your Promises to Your People and Investors

Sequoia’s expert compensation and benefits advisors provide our clients with hands-on and data-driven guidance to help them create scalable strategies for every level of growth. Want to find out how Sequoia can help your organization? Talk to an advisor who is ready to answer your questions.

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Dylan Hughes — Dylan has more than 7 years of experience delivering market insights on compensation and benefits with a primary focus on benchmarking. He leads the market insights program at Sequoia, which provides the latest analytics, market trends, and benchmarking data.