2026 Salary Increase Projections Stability Amid Economic Challenges

Good morning. Salary increases for employees are expected to remain similar next year amid a flatter, but potentially volatile, economic outlook. For U.S. companies, the average salary increase budget is projected to hold steady at 3.5% in 2026, matching the actual increases seen in 2025, according to the Salary Budget Planning Report by Willis Towers Watson (WTW). About 31% of respondents plan to lower their salary increase budgets compared to last year, mainly due to concerns about a possible recession, weaker financial performance, and the need for tighter cost control. In contrast, the few organizations planning to raise their budgets cite a competitive labor market and inflationary pressures as key reasons.

The global survey, conducted from April to June, included responses from 1,569 U.S. organizations. Employers are no longer simply reacting to economic signals regarding pay allocation, according to WTW. They’re accounting for other labor factors. “Just as they do with any other investment, the most forward-thinking CFOs that we speak with are looking holistically at all aspects of pay and benefits to better understand which programs resonate most with... This year’s downward slide back to “the land of 3%” was evidenced in this May article that addresses the average salary increase in the U.S.

going from 4.4% in 2023 to 4.0% in 2024 and down to a projection of 3.7% this year. Now that we’re in Q4, it appears my statements back then will stand, and we will remain firmly in the land of 3% in the coming pay cycle. While we wait for results from WTW’s December Salary Budget Planning Survey, the July edition reported a 3.5% average increase projected for 2026 in the U.S. This also is what most companies appear to have paid this year (down from the earlier 3.7% projection). As those who are on a fiscal calendar year prepare for your upcoming annual pay cycle, you may already be getting questions from leaders and others about why salary increase budgets are projected to... labor market.

In August 2025, the U.S. Department of Labor’s jobs creation report showed that only 22,000 jobs were added to the economy. By comparison, the average job creation from 2021 to 2023 was 350,000 per month — a stark difference that amplifies where the labor market landed in 2025. With headlines blaring about how dismal the demand for labor has become in the United States, the thought that salary increase budgets should drop seems logical, but for three key factors. As a SHRM Member®, you’ll pave the path of your success with invaluable resources, world-class educational opportunities and premier events. Build capability, credibility, and confidence to influence strategy, shape culture, and drive measurable business impact.

Demonstrate your ability to apply HR principles to real-life situations. Stand out from among your HR peers with the skills obtained from a SHRM Seminar. Demonstrate targeted competence and enhance your HR credibility. Referring to the current political and business environment as a “time of change,” an April report by consulting firm WTW on widescale U.S. policy shifts pointed to American workers’ concern about the state of their anticipated salary increases. In that survey, 56% of surveyed employers indicated their workforces are worried about base pay increases.

Respondents tried to temper those fears, even slightly, with 48% stating they anticipated no impact to this year’s projected salary increases but some impact on their 2026 budget, and 28% anticipating no impact this... With that as a backdrop, WTW released its Salary Budget Planning Report on Tuesday, July 8, which, on its face, could perhaps be summed up as: the more things change, the more things stay... Some complex activities are supporting — and even countering — that smoothness. According to the report, the composite look from 1,569 surveyed U.S. organizations shows average salary increase budgets for 2026 will remain stable at 3.5%, matching American employers’ actual increases for 2025. (WTW had initially predicted 3.7% increase budgets for 2025.) The firm’s expanded outlook report for 2026 reflected similar stability for select countries outside of the U.S.

“While top-line budgets are generally holding steady, the real shift is happening beneath the surface,” said Brittany Innes, the director of rewards data intelligence at WTW. “Organizations are being more deliberate about how they allocate pay, where they focus investment and what outcomes they expect to drive. Employers are no longer simply reacting to economic signals; they’re reimagining how to best support broader business goals despite uncertainty.” WTW’s data points for 2026 projections and 2025 actuals resemble those found in other recently released salary budget survey reports for the U.S. market. Only 16% of U.S.

companies expect next year’s budget growth to exceed the 2025 level. U.S. employers project an average 3.5% increase in their salary budgets for 2026, a tick below the 3.6% climb they’re experiencing this year. Despite inflationary pressures, the stagnant level of budget hikes reflects both concern over the economy and labor-market conditions that favor employers. That’s according to Payscale, a provider of compensation data and software, which surveyed 1,551 compensation managers in the United States and Canada. Only 16% of U.S.

organizations anticipate a 2026 salary increase budget that is higher than this year’s. The same proportion expects the budgets to be lower next year, while 68% believe they’ll hold steady. Among those anticipating lower budgets, 66% cited economy-related worries as the primary reason. In previous years, the leading reason was that higher pay increases were given the year before due to rising labor costs and inflation, Payscale wrote in its survey report. Salary increases for employees are projected to remain stable next year, reflecting a steadier yet potentially volatile economic landscape. According to the Salary Budget Planning Report by Willis Towers Watson (WTW), the average salary increase budget for U.S.

companies is expected to hold steady at 3.5% in 2026, mirroring the actual increases seen in 2025. The report highlights that around 31% of organizations plan to reduce their salary increase budgets compared to the previous year, primarily due to concerns over a potential recession, weaker financial performance, and the necessity... Conversely, the few organizations intending to raise their budgets attribute their decision to a competitive labor market and inflationary pressures. The global survey, conducted from April to June, included responses from 1,569 U.S. organizations. Employers are moving beyond merely reacting to economic signals when it comes to pay allocation, as noted by WTW.

They are considering various labor factors, with forward-thinking CFOs evaluating all aspects of pay and benefits to identify which programs resonate most with employees and offer the highest return on investment. Another significant finding of the report is that despite limited pay growth, employee turnover remains low. Fewer organizations report challenges with employee stability compared to the past two years, with only 30% of surveyed organizations finding it difficult to attract or retain employees, a decrease of 11 percentage points from... More employees are inclined to stay with their current employers, with 62% in 2024 compared to 49% in 2022, and fewer are open to offers, dropping from 22% to 11%. However, nearly 30% are still actively job hunting. Structural factors also play a role, as U.S.

Bureau of Labor Statistics data indicates fewer job opportunities are available compared to previous years. Despite millions of open jobs, the premium for changing jobs is lower today than in previous years. Mercer, a business of Marsh McLennan (NYSE: MMC) and a global leader in helping clients realize their investment objectives, shape the future of work and enhance health and retirement outcomes for their people, today... The survey of more than 1,000 US organizations revealed that on average, employers plan to hold base salary increases for merit at 3.2%, and total increases at 3.5%, which encompasses all salary increases, including... Looking ahead, 61% of the employers surveyed anticipate that the economy will have a moderate to significant impact on compensation decisions in 2026. Nevertheless, employers remain committed to prioritizing skill and talent development (34%), market competitiveness (31%), and compensation adjustments (24%) next year.

However, the data suggests a disconnect between these priorities and how budgets are allocated. More than 8 out of 10 (83%) employers indicated they would distribute their salary increase budgets equally across the organization, rather than directing more resources towards high-demand skills or critical market gaps. Further, employers plan to promote fewer employees in 2026 – around 9% of their workforce, down from 10% in 2025, with an average pay increase for promotions of 8.7%. “Employers have a significant opportunity to strategically shape their spending to better align with critical talent goals,” said Lauren Mason, Mercer’s US Workforce Solutions Leader. “By focusing compensation budgets on high-demand skills rather than spreading resources too thin, leaders can more effectively drive their workforce strategy and secure the talent essential for success.” Employers in the year ahead are likely to remain reluctant to embark on any major hiring sprees, and the lack of demand for workers should serve to keep a lid on pay increases.

Several major forecasts and surveys of employers largely call for the continuation of the job market's recent trends, in which hiring has slowed to a crawl compared to the last few years. Employers have been reluctant to hire too many workers, but also wary of mass layoffs, as economic uncertainty caused by unpredictable tariff policies has made planning future expansions difficult. U.S. employers plan to give raises averaging 3.3%, a tenth of a percentage point lower than in 2025, according to a survey by payroll software company Payscale. Wage growth is expected to be moderate in 2026, in line with the cooling labor market. Forecasters at jobs website Indeed expect the job market to remain in low gear over the next year, with job openings stabilizing rather than continuing to decline, and unemployment rising, but not too much.

None of that would push employers to give out huge pay raises like they did in 2022 when labor was in high demand, and the economy was reopening from the pandemic.Wage growth, as measured... Wages were up 2.5% over the year in September, compared to a 3.4% annual increase in January. Some economists think the job market might slow down even further in the year ahead, which would put downward pressure on wages. This might be why the Fed has been lowering borrowing costs, which can boost hiring. While Americans' salaries are projected to grow at a steady pace in 2026, following years of volatile market adjustments, some changes to their compensation are anticipated next year. According to the results of the August Compensation Planning Survey by consulting firm Mercer, U.S.

employers are projecting a "merit increase budget"—money set aside for salary hikes—of 3.1 percent in 2026, compared with 3.2 percent in 2025. Meanwhile, the "total increase budget," representing the overall average increases in compensation, is expected to see flat growth of 3.5 percent. Salaries have failed to keep pace with inflation in recent years, with wages rising by 21.5 percent since the beginning of 2021 while prices climbed 22.7 percent, according to a Bankrate analysis of Labor... As Americans face heightened financial pressures in 2025, and with overall confidence in the U.S. economy declining, the prospect of promotions or better compensation will be a key concern for many. According to Mercer's report, U.S.

employers expect to promote around 8.1 percent of the employee population in 2026. Nearly all U.S. companies (82 percent) anticipate "economic factors" affecting their compensation decisions in the coming fiscal year. Of these, 20 percent believe the effects will be significant, 46 percent expect these to be moderate and 16 percent foresee a minimal impact, with 16 percent unsure and only two percent expecting no... Pay increases and inflation have both leveled off, but HR should prepare for heightened scrutiny around pay, one analyst said. U.S.

People Also Search

• Pay raises plateau: Companies hold steady on salary budgets for 2026
• Preparing for 2026 salary increases - WTW - Willis Towers Watson
• Employers Eyeing Flat Salary Increases in 2026 - SHRM
• WTW: 2026 U.S. Salary Increase Budgets Will Hold Steady at 3.5%
• Salary budgets to maintain 3.5% growth trajectory in 2026
• 2026 Salary Increase Projections: Stability Amid Economic Challenges ...
• Most US employers plan to keep 2026 salary increases flat to ... - Mercer
• Expecting a Big Raise in 2026? Don't Count on It - Investopedia
• How American Salaries Are Set To Change in 2026 - Newsweek
• Wage growth flat for 2026 amid economic jitters, employers tell ...