Dive Brief:
- U.S. salary budgets are expected to remain stable in 2026 at 3.4%, the actual salary budget increase experienced last year, according to the results of a survey released Wednesday by global advisory, broking and solutions company WTW.
- Nearly two-thirds of employers haven’t made any changes to their projected pay budgets, which were first set midway through the year, the report found.
- “The labor market has reached a sort of equilibrium in the sense that demand for labor is significantly lower than where it was the past few years, while labor supply shortages have also continued. Since salary increase budgets are a direct reflection of this dynamic, we can expect a period of relative stability for salary increases for the foreseeable future,” Lori Wisper, managing director of work and rewards at WTW, said in a statement.
Dive Insight:
Only 6% of companies said they plan to increase budgets, while 21% will reduce pay budgets from their initial projections, WTW found. Those making changes cited cost management concerns, an expected recession or poor financial performance, a tight labor market and inflationary pressures.
“The traditional approach of spreading around available budget to most employees is being replaced with strategic use of each dollar. Those employees that are growing their skills, contributing to financial outcomes and demonstrating contributions that impact market impressions are poised to receive the larger share of the budget,” Heather Ryan, rewards data and intelligence head of product at WTW, said in a statement. “Those that keep the business running with efficiency will also benefit.”
Ryan expects this approach to continue beyond 2026, with rewards aligned with outcomes.
For example, GameStop recently unveiled a performance-based plan for its CEO and board chair Ryan Cohen. If approved, Cohen’s stock options would only fully vest if the company achieved a $100 billion market capitalization and $10 billion in cumulative performance EBITDA.
However, a December 2025 Mercer report revealed somewhat contradictory results: Most of the U.S. companies surveyed by Mercer said they planned to distribute merit base salary increases equally rather than directing greater funds to employees with high-demand skills or to address market gaps.
WTW found that companies are using their limited budget capacity to retain critical talent and address acute pay compression and, as a result, have seen staff voluntary turnover rates fall. To retain workers, employers are making efforts to improve the employee experience, increase training opportunities, change health and wellness benefits, offer more workplace flexibility and change compensation programs, WTW said.