Gallagher: Employers Taking ‘Measured’ Approach to 2027 Pay Budgets

Salary increase budgets continue to moderate, but the path of decline is decreasing, leading U.S. employers to forecast 2027 average pay bumps between 3.3% and 3.4%, depending on job classification. This is according to the 2026/2027 Salary Planning Report from risk managing and consulting firm Gallagher.

Gallagher’s report, based on a survey of nearly 1,200 employers, revealed participating organizations are forecasting fiscal year 2027 average total pay increases of:

• 3.4% for non-exempt (hourly) workers (vs. a 2026 projection of 3.3%)
• 3.4% for managers (vs. 3.3%)
• 3.3% for executives (vs. 3.2%)
• 3.3% for “other exempt” workers (3.2%)

This is a slight step down from 2026 actual increases, as the report showed averages of:

• 3.9% for managers (vs. 4.0% in 2025)
• 3.8% for non-exempt workers (vs. 3.9%)
• 3.8% for “other exempt” workers (3.8%)
• 3.7% for executives (vs. 3.8%)

The data points for 2027 projections and 2026 actuals resemble those found in other recently released salary budget survey reports for the U.S. market (see table below).

A Breakdown of the Survey Respondents

Employers that participated in the Gallagher study represented a mix of:

• Organizational ownership structures
  • 46% for-profit entities
  • 54% non-profit entities
• Workforce sizes (in full-time equivalents, or FTEs)
  • 35% under 100 FTEs
  • 33% 100 to 499 FTEs
  • 9% 500 to 999
  • 22% 1,000 or more
• Organization sizes (in annual operating income)
  • Less than $1 million: 5%
  • $1 million to $4.9 million: 16%
  • $5 million to $19.9 million: 20%
  • $20 million to $99.9 million: 22%
  • $100 million to $499 million: 17%
  • $500 million to $999 million: 5%
  • $1 billion to $2.9 billion: 6%
  • $3 billion to $4.9 billion: 2%
  • $5 billion to $9.9 billion: 2%
  • $10 billion or more: 5%
• Primary U.S. geographic locations
  • 46% North Central region
  • 15% West
  • 14% South Central
  • 13% Northeast
  • 12% Southeast

What Gallagher Sees in Employers’ Responses

The firm used words such as “stabilization,” “less urgency” and “more measured and predictable” to describe the current human capital and financial environment.

“This stabilization [in salary increase budgets] is unfolding alongside a labor market characterized by sustained employment levels and cautious workforce movement,” Gallagher stated in the report’s opening section. “Hiring activity has slowed without a corresponding rise in layoffs, creating a ‘low hire, low fire’ environment. In this context, organizations face less urgency to make aggressive pay adjustments to attract talent, while still needing to remain competitive to retain it. The result is a more measured and predictable approach to salary planning. [Within this setting,] compensation strategies are becoming more deliberate in how increases are allocated.”

Regarding specific compensation programs, the report pointed to a continuation of recent trends.

“Merit continues to anchor salary planning, while general or COLA [cost-of-living allowance] increases decline further and represent a smaller share of total movement,” it stated. “Discretionary or ‘other’ increases remain limited, reinforcing a shift away from broad-based adjustments toward targeted, performance-driven investments.”

Job-Based Compensation Decisions

Examining pay increase decisions by job classification, the report showed some nuanced differences.

Non-Exempt Workers

While 3.4% is the projected average total pay increase (3.3% within for-profit organizations, 3.5% within non-profits) for hourly employees, some variance occurred by:

• Geographic region (3.6% West, 3.5%, Northeast, 3.4% North Central, 3.3% South Central and 3.3% Southeast); and,
• Workforce size (3.5% for employers with 500 to 999 employees, 3.5% for those with less than 100, 3.4% for those with 100 to 499, and 3.3% for those 1,000 or more).

Among the factors contributing (with unequal weight) to the total pay increase figure (across all demographics), projections are 2.6% for merit pay, 1.8% for general/COLA and 0.6% for “other.”

Managers

While 3.4% is the projected average total pay increase (3.2% for-profits, 3.5% non-profits) for managers, variance occurred by:

• Geographic region (3.6% Northeast, 3.5% Southeast, 3.5% West, 3.3% North Central and 3.3% South Central); and,
• Workforce size (3.5% for employers with less than 100 employees, 3.4% for those with 100 to 499, 3.4% for those with 500 to 999, and 3.3% for those 1,000 or more).

Among the total-increase contributing factors, projections are 2.6% for merit pay, 1.8% for general/COLA and 0.6% for “other.”

Executives

While 3.3% is the projected average total pay increase (3.0% for-profits, 3.5% non-profits) for executives, variance occurred by:

• Geographic region (3.5% Southeast, 3.3% North Central, 3.3% West, 3.2% Northeast and 3.1% South Central); and,
• Workforce size (3.5% for employers with 500 to 999 employees, 3.4% for those with less than 100, 3.2% for those 1,000 or more, and 3.1% for those with 100 to 499).

Among the total-increase contributing factors, projections are 2.5% for merit pay, 1.7% for general/COLA and 0.5% for “other.”

Other Exempt

While 3.3% is the projected average total pay increase (3.3% for-profits, 3.4% non-profits) for “other exempt” employees, variance occurred by:

• Geographic region (3.8% Northeast, 3.4% Southeast, 3.3% South Central, 3.3% West and 3.2% North Central); and,
• Workforce size (3.5% for employers with 500 to 999 employees, 3.4% for those with 100 to 499, 3.3% for those with less than 100, and 3.2% for those with 1,000 or more).

Among the total-increase contributing factors, projections are 2.5% for merit pay, 1.8% for general/COLA and 0.6% for “other.”

Case-Based Compensation Decisions

Examining specific compensation-based decisions, the report showed:

• For instances of promotions, organizations are planning average increase budgets of 3.4%, compared to a 2026 average actual increase of 3.2%. For-profit organizations are predicting 3.7% average promotion-based increases for next year, vs. 3.1% for non-profits. Looking at workforce size, employers with 100 to 499 FTEs are planning for the largest average increases (3.8%), while those with 1,000 or more FTEs are anticipating the smallest (3.0%).
• For instances when considering lump sum awards instead of base pay increases, 65% of surveyed organizations don’t plan to utilize this approach. However, among those that do, 31% would consider it for employees at the salary range maximum and 4% would for employees in all parts of the salary range. Organizations with 1,000 or more employees are most apt to choose lump sums:
  • Just 40% said they don’t plan to utilize these payments (versus 50% for those with 500 to 999 employees, 66% for those with 100 to 499 and 83% for those with less than 100).
  • 56% said they would use them for employees at the range maximum.

Top-level results from WorldatWork’s 2026-2027 Salary Budget Survey report are available to the general public. In addition, the full report — covering base salary increases and merit budgets for 24 countries/geographic regions and in-depth salary budget insights for the U.S., Canada, India and the United Kingdom — will soon be available for purchase. Report purchase also provides access to the U.S./Canada Online Reporting Tool to build customized reports based on industry, organization size and/or geographic area.

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

• Employee Compensation
• Finance and Budgeting
• Total Rewards