Dive Brief:
- Companies in the U.S. said they expect to increase pay by both an average and a median of 3.5% for 2027, according to Payscale’s 11th Annual Salary Budget Survey. That’s 0.1% more than what employers reported giving in 2026.
- In 2026, 36% of U.S. organizations gave across-the-board pay increases also known as peanut butter raises. However, only 32% of companies said they planned to give peanut butter raises in 2027. The report said these types of raises can be demotivating, with 25% of firms saying they lost employees in 2026 “due to insufficient pay increases.”
- The most popular type of pay raises last year were merit increases, per the report, which added that some companies handed out different types of increases and some combined across-the-board pay increases with other types of raises.
Dive Insight:
In the U.S., 30% of companies said they expect salary budgets to be higher year over year in 2027, up substantially from 16% reported last year. That said, 63% of companies expect their salary budgets to stay the same, compared to 68% that said this a year ago. Just 8% said they planned for smaller budgets, down significantly from the 16% that reported decreasing their budgets in the previous survey.
Improved economic conditions have prompted more organizations to say they plan on a larger budget this year, the report said.
Although the planned increases for next year are higher than they were this year, the report added that overall pay increases “have been trending downward since COVID-19 and the Great Resignation.” When inflation spiked after COVID, turnover also increased, which led to increased pay raises.
While pay increases and cost of living aren’t directly related, rising costs may be motivating workers to job hunt, the report said, which has led companies to give pay increases above the rate of inflation in order to improve retention.
Currently, inflation matches wage growth, which means workers “may be more open to exploring the market to find a new job with higher pay.”
Nonetheless, 42% of the companies planning to reduce pay increases cited concerns about “future economic conditions or business performance,” though that’s lower than the 66% that said the same thing last year.
“Pay increases alone do not determine wage growth,” the report said. “Wage growth is also influenced by workers changing jobs and incurring higher wages due to market dynamics. Workers may also receive salary adjustments separate from annual pay increases. This is why it is important for employers to think in terms of total payroll budgets.”
The way in which employers set pay may be changing as well. HR professionals are increasingly determining pay, benefits and total rewards through the use of artificial intelligence, according to a February survey from Korn Ferry. However, the majority of HR leaders (57%) said they’re not yet experimenting with AI for this purpose.