Dive Brief:

• Just 32% of U.S. companies plan to give across-the-board pay increases in 2027, compared to 36% this year, as more employers plan to use anticipated salary budget increases on merit raises, as well as on increases in promotions, cost-of-living adjustments, and salary structures, according to a survey released Tuesday by Payscale, a compensation data company.

• On average, companies are planning to increase salary budgets by 3.5%, an amount that is just a fraction higher than the 3.4% increase in 2026. It is broadly in-line with the rate of inflation, according to the Payscale report. 

• In total, 63% of companies anticipated their salary budget increases would remain the same in 2027 as it was for the current year — however, the number of employers that did project higher budget increases rose significantly year-over-year, the report stated. 

Dive Insight:

The findings from the Payscale survey are generally aligned with another recently published survey report from WTW, a London-based advisory and broking firm. 

That WTW report found that companies are taking cautious approaches to salary planning, citing cost management pressures, a tight labor market, and inflationary concerns. Over one-third reported strategic adjustments to compensation programs, including higher salary ranges and bonuses or spot awards for key employees. 

Likewise, U.S. companies in the WTW survey anticipated salary budgets — the amount an organization sets aside for annual workforce salaries — to increase 3.4% in 2027, slightly lower than the actual 3.5% increase in 2026. 

In the Payscale report, 63% of companies anticipated salary budget increases in 2027 that were roughly the same as their 2026 increases. But the 30% of companies that did project salary budgets to increase in 2027 was a 14% bigger share of companies that made such projections for 2026 in last year’s report. 

Among the reasons organizations noted for projecting increases in 2027, 30% cited improved economic conditions or business performance, while 27% pointed to increased competition for labor or labor supply shortages, and 24% to a change of compensation philosophy or competitive positioning.

Employee recruitment and retention strategies

Despite the slight bump in projected salary budgets in 2027, pay bumps, in general, have decreased since peaking during the COVID-19 pandemic, according to the Payscale report. 

Before the pandemic, pay increases averaged around 3% annually — higher than the rate of inflation, which hovered at around 2%, the report stated. Following the pandemic, inflation and employee turnover both spiked — a trend dubbed “The Great Resignation” that caused many employers to roll out retention strategies that included pay raises above inflation. 

But in 2022 and 2023, inflation surpassed wage growth considerably due to the market effects of the pandemic before falling to a rate where the two metrics are aligned, the report stated. In 2023, annual pay increases spiked at 4% before dropping to 3.6% in 2024. 

“Because inflation now matches wage growth, we are entering a period where workers may be more open to exploring the market to find a new job with higher pay,” the Payscale report stated. 

But, as reflected in the WTW report, companies are also taking different approaches in how they are compensating their employees. 

Last year’s Payscale report found 44% of companies planned to give or were considering across-the-board pay increases, regardless of performance — a strategy that is common among organizations with a lot of hourly employees. 

But, according to the report, a quarter of companies also stated they were losing talent in 2026 due to insufficient pay increases, a trend that could be attributed to such salary increase strategies. 

“Peanut butter pay can be demotivating to employees as everyone receives the same increase regardless of performance,” the report stated. 

That may have led some companies to change their strategies, as only 36% actually deployed across-the-board pay increases in 2026, and only 32% said they planned to do so in 2027, the report stated.