Employers Eyeing Flat Salary Increases in 2026

Employers are planning to stay flat with salaries — or decrease them — in the next year, leaving organizations to rely on engaging employees and keeping them happy in other ways.

Average salary increase budgets for U.S. companies in 2026 are expected to remain steady at 3.5%, matching 2025’s actual increases, according to a survey of 1,569 U.S. organizations from consulting firm WTW.

About 3 out of 5 organizations saw their salary budgets change in the last pay cycle. Of those, 53% reported no change between their anticipated and actual pay budgets in 2025. About a third (31%) said they are projecting lower salary increase budgets than last year — the most common reasons cited are an anticipated recession or weaker financial results (51%) and concerns related to cost management (45%). Just 15% plan to boost salary increases in the next year. Tight labor markets (59%) and inflationary pressures (30%) are the most common reasons for change among the relatively few organizations that are projecting higher salary increase budgets.

Although salaries are mostly staying flat, the real compensation shift is “beneath the surface,” said Brittany Innes, 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,” she said. “Employers are no longer simply reacting to economic signals, they’re reimagining how to best support broader business goals despite uncertainty.” 

That’s different from previous years, when salary increases reached new heights as a result of a confluence of factors, including the pandemic and high inflation. 

Economic Uncertainty

Overall, the salary shift is occurring as employers say they are less concerned with retaining and attracting employees: Fewer than one-third of organizations (30%) reported difficulty attracting or retaining employees, a decrease of 11 percentage points since 2023, according to WTW. Employees are largely staying put with their companies as they contend with fears over job security and economic impacts. Employee optimism is near a record low, driven by economic and political concerns, according to an April SHRM pulse survey of 1,067 U.S.-based workers and 2,060 HR professionals. 

The WTW findings are the latest to indicate that employers are pumping the brakes on overly competitive pay raises. A March 2025 Mercer survey found that employers are issuing lower-than-anticipated annual pay increases. So far in 2025, employers delivered an average merit increase of 3.2% — the percentage of payroll given to employees as a base salary increase for merit — below the 3.3% they projected they would give last November. The average total increase employers gave in 2025 was 3.5%, which accounts for all salary increases, including merit, promotional, cost-of-living, and other adjustments. That’s also lower than their fall projections, when U.S. employers said they expected to deliver an average 3.6% pay bump.

The data suggests that economic tailwinds are affecting pay plans. 

“Uncertainty surrounding future economic conditions and whether broad changes to immigration and trade policies will be implemented have employers feeling anxious regarding the direction of compensation costs this year and beyond,” Sydney Ross, economic researcher at SHRM, said recently. 

“In such an uncertain environment, it is likely that many employers are in wait-and-see mode and will take a more cautious approach as they devise their pay and compensation strategies going forward,” Ross added. 

What Else Are Employers Doing? 

Rather than rely on big annual pay raises, employers are adjusting their compensation packages in other ways. 

Some organizations, according to WTW, are conducting a compensation review of all employees (50%), performing a compensation review of specific employee groups (48%), hiring people higher in relevant salary ranges (45%), and raising starting salary ranges (40%). Meanwhile, 43% of organizations have enhanced their use of retention bonuses or spot awards, and 37% have targeted base salary increases for specific employee groups.

Employers also told WTW they are improving the employee experience (47%), enhancing health and wellness benefits (43%), and increasing training opportunities (40%).