Average salary increase budgets for U.S. companies in 2026 are projected to remain at 3.5%, matching the actual increases recorded in 2025, according to the latest Salary Budget Planning Report by WTW, a global advisory, broking, and solutions company.

Three out of five organizations experienced changes in their salary budgets during the last pay cycle. More than half (53%) reported no difference between their anticipated and actual 2025 pay budgets. Among the 31% of companies projecting lower salary increase budgets than last year, the most common reasons cited were:

  • Anticipated recession or weaker financial results (51%)
  • Cost management concerns (45%)

For the smaller group projecting higher increases, the primary factors included tight labor markets (59%) and inflationary pressures (30%).

“While top-line budgets are generally holding steady, the real shift is happening beneath the surface. Organizations are being more deliberate about how they allocate pay, where they focus investment and what outcomes they expect to drive,” said Brittany Innes, Director, Rewards Data Intelligence at WTW.

Employee Retention Trends

Despite stable pay budgets, retention challenges have eased. Only 30% of organizations reported difficulty attracting or retaining talent, an 11-point drop from 2023. However, with burnout and disengagement still concerns, employers are implementing workforce support measures such as:

  • Improving employee experience (47%)
  • Enhancing health and wellness benefits (43%)
  • Expanding training opportunities (40%)

Compensation Adjustments

Employers are fine-tuning compensation strategies to remain competitive and address inflationary pressures. Common actions include:

  • Comprehensive compensation review for all employees (50%)
  • Targeted compensation review for specific employee groups (48%)
  • Hiring talent at higher points within salary ranges (45%)
  • Raising starting salary ranges (40%)
  • Increasing use of retention bonuses or spot awards (43%)
  • Targeted base salary increases for specific groups (37%)

Rising Payroll Costs

The average annual payroll expense rose by 3.6%, with 70% of organizations reporting higher payroll costs compared to the previous year.

“As employers navigate continued economic uncertainty, rising labor costs, and evolving employee expectations, they are investing in their workforce beyond pay raises—through career development, wellbeing initiatives, flexibility, and equity,” said Lori Wisper, Managing Director, Work & Rewards at WTW.

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