U.S. companies are planning to increase salary budgets by an average of 3.4% in 2026, holding steady from the actual increase in 2025, according to the December Salary Budget Planning Survey by advisory firm WTW.

Why it matters: The stabilization signals a shift away from the reactive, inflation-driven pay raises of recent years toward more deliberate and strategic compensation planning. With economic pressures easing, companies are focusing on rewarding performance over across-the-board increases.

The big picture: The labor market appears to be reaching a point of equilibrium after years of volatility. Voluntary staff turnover has continued to decline, dropping to 10.1% over the last year. This cooling-off period is allowing employers to be more disciplined in how they allocate compensation dollars.

By the numbers:

  • 62% of employers have not changed their projected pay budgets since they were first set.
  • 21% of companies are decreasing their pay budgets, compared to just 6% that are increasing them.
  • 36% of employers cited cost management and concerns over a potential recession as reasons for budget adjustments.
  • 24% of organizations still report issues with attracting or retaining employees.
Zoom in: Companies are moving away from spreading budgets evenly and are instead concentrating raises on top performers and employees with critical skills. This reflects a broader trend of tying compensation directly to measurable outcomes.

  • "The traditional approach of spreading around available budget to most employees is being replaced with strategic use of each dollar," said Heather Ryan, a leader in WTW's rewards intelligence division. "Rewards must align to outcomes now more than ever."
Between the lines: While salary is a key factor, companies are also leaning on non-monetary incentives to keep talent. With limited budget capacity, many are focusing on retaining critical staff by improving the employee experience (50%), increasing training opportunities (43%), and enhancing health and wellness benefits (42%).

What they're saying: "The labor market has reached a sort of equilibrium," said Lori Wisper, managing director of Work & Rewards at WTW. "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."

SOURCE: WTW

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