Salary Budgets Have Stabilized as Employers Focus On Pay Strategy for 2026

US salary budgets for 2026 are expected to remain stable at 3.4%, the same as the actual salary budget increase for 2025. Inflation expectations have regulated across many economies, reducing the need for reactive pay increases and instead allowing organizations to plan proactively. This is according to the latest Salary Budget Planning Survey from leading global advisory, broking and solutions company.

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Budgets expect to remain stable due to greater clarity, more disciplined prioritization and understanding where compensation can drive meaningful impact.

For the current cycle, nearly two-thirds of employers (62%) have made no change to their projected pay budgets, since they were first set mid-way through the year. While just a few (6%) are increasing budgets, over one-fifth (21%) of employers will decrease pay budgets. For those making changes to their initial budget projections, concerns related to cost management (36%), an anticipated recession or weak financial results (36%), a tight labor market (32%) and inflationary pressures (25%) are factors influencing pay budgets.

“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. Those that keep the business running with efficiency will also benefit. This approach will likely continue beyond 2026. Rewards must align to outcomes now more than ever,” said Heather Ryan, Rewards Data Intelligence Head of Product, WTW.

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The recent consistency in salary budgets reflects underlying changes in how leaders are approaching workforce planning and compensation decision-making, with many organizations reporting stronger governance around pay decisions, more sophisticated use of market data and segmentation, and increased focus on affordability and maintaining internal equity. As such, one- quarter (24%) of organizations have reported issues with attracting or retaining employees.

Staff voluntary turnover rates have also continued to drop to 10.1% over the last year, with companies directing limited budget capacity toward retaining critical talent and addressing pay compression where it is most acute. Other staff retention actions have included improving the employee experience (50%), increasing use of training opportunities (43%), making changes to health and wellness benefits (42%), greater workplace flexibility (35%), and changes to compensation programs (32%).

“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,” said Lori Wisper, managing director, Work & Rewards, WTW.

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