Dive Brief:
- U.S. employers expect to set base salary merit increases at 3.2% and total salary increases, which include merit, promotions, cost-of-living adjustments, at 3.5% next year, according to the results of a compensation planning survey released Monday by professional services firm Marsh.
- Those increases are “roughly in line” with the actual increases employers reported in each of the last three years, the company said.
- As companies try to set budgets, they face competing pressures from the economy and efforts in talent attraction and retention, Marsh said.
Dive Insight:
“If projections hold, and historically they have, this will mark four consecutive years of moderate compensation increases,” Tauseef Rahman, Marsh’s U.S. workforce reward solutions leader, said in a statement.
Employers say the economy will continue to influence how they make compensation decisions, and nearly 6 in 10 said it will have at least a moderate impact.
“Economic uncertainty is top of mind for employers this year, and compensation dollars are tight,” Rahman said. “To make the most of their budgets, employers should take a targeted approach, scrutinizing each compensation dollar and using data to direct increases where workforce needs and talent risk are the greatest.”
Of more than 5,500 employers surveyed by consulting firm Korn Ferry in June, nearly half said they expected to raise salaries for at least 95% of their employees, and 79% expected to do so for at least 80% of employees.
Many organizations said they had yet to finalize their budgets at the time of the Marsh survey in mid-July. Eighty-seven percent of the more than 1,000 companies surveyed said their budgets were still preliminary, 8% had proposed budgets to leadership, and 5% had already gotten approval.
As companies look to balance economic pressures with talent development, market competitiveness and hiring, many turn to promotions and off-cycle pay increases, Marsh found. Sixty-four percent of those surveyed said they had provided or planned to provide off-cycle salary adjustments in 2027, “showing that compensation decisions continue well beyond the annual merit cycle.”
Artificial intelligence is also increasingly becoming part of the compensation discussion; however, most companies “are still in the beginning of their journeys,” Marsh said. Overall, 70% of organizations said they had some automation in compensation, but only 1% reported being at an advanced level.
“AI is widely used for basic tasks such as market pricing a job or determining a new job’s level within the organization, but it’s not yet having a substantial impact on the compensation function,” Rahman said. “The barrier isn’t interest; it’s governance, data quality, and system integration.”
In fact, more than half of the HR and total rewards professionals surveyed by Korn Ferry in February said they hadn’t started experimenting with AI in total rewards.