Salary.com Report Points to 2027 Budget Stability, Merit Pay Concerns

U.S. employers predict they will have 3.5% higher salary increase budgets, on average, in 2027, the same year-over-year increase percentage they secured and provided in 2026, according to the results of the 16th annual Salary.com U.S. and Canada National Salary Budget Survey, released Thursday, Sept. 24.

The survey report also showed Canadian employers project 3.4% average salary increase budgets for next year, versus the 3.3% they handed out this year.

Salary.com, a compensation software, data and services firm, surveyed 818 organizations (representing 22 industries) for this year’s report. The 2027 U.S. projections and 2026 actuals resemble those found in other recently released salary budget survey reports (see table below).

Source	2027 Projection	2026 Actual
WorldatWork	3.6% average	3.6% average
Conference Board	3.5% median	3.5% median
Gallagher	3.3% to 3.4% average*	3.7% to 3.9% average*
Korn Ferry	3.3% average / 3.0% median	3.4% average / 3.3% median
Mercer/Marsh	3.5% average	3.4% average
Payscale	3.5% average	3.4% average
Salary.com	3.5% average	3.5% average
WTW	3.4% average	3.5% average

* = job-classification dependent

Merit Pay Stability and Quandary

The Salary.com report showed U.S. respondents, on average, factored 3.2% merit increases, 2.0% general increases and 0.8% equity/market adjustments toward their anticipated 2027 salary budgets. That breakdown is on par with recent actuals (see below).

Year	Merit Increase	General Increase	Equity/Market Increase
2027 Projection	3.2%	2.0%	0.8%
2026 Actual	3.2%	2.1%	0.7%
2025 Actual	3.2%	1.8%	0.7%
2024 Actual	3.3%	2.2%	0.8%
2023 Actual	3.4%	2.5%	1.2%
2022 Actual	3.2%	2.2%	1.7%

Canadian respondents factored, on average, 2.7% merit increases, 1.9% general increases and 0.5% equity/market increases toward their 2027 plans (versus 2026 actuals of 2.7%, 2.1% and 0.5%, respectively).

According to Salary.com’s soon-to-be-released summary report, “[American and Canadian] organizations have now run the same modest playbook for two years straight: predictable, incremental increases instead of the sharper swings that defined budgets a few years back. With merit increase budgets frozen at a 3.0% median (and 3.2% mean) for the second consecutive year, the traditional pay-for-performance model has hit the limits of what a single variable can carry.”

The report expounded upon that last sentence, regarding pay for performance, citing the relatively small difference in merit dollars between high performers and solid performers.

“When an organization operates with a 3.0% [median] merit pool, the financial margin available to meaningfully reward top performance is remarkably thin,” it stated.

The table below shows the math between two employees who each make a $75,000 base salary, but one earns a 3.0% increase for being classified as a solid performer and the other earns a stretched-matrix 5.5% increase for being deemed a high performer.

Performance Tier	Merit Increase	Annual Pretax Impact (on $75,000 Salary)	Per Biweekly Paycheck
High performance	5.5%	$4,125	$159
Solid performance	3.0%	$2,250	$87

The difference, $72 per paycheck, is “hardly sufficient to drive motivation or defend against external poaching,” the report said, adding, “You simply cannot create effective pay-for-performance programs on performance data alone when you’re trying to spread 3.0% across employees who range from solid performers to superstars. The math needs more inputs than a rating can give it.”

The report said market rate positioning, in-demand and critical skills, internal equity, salary compression, and flight risk and retention are factors that also should be considered toward merit increases.

Pay Strategies for Employee Categories

U.S. respondents plan to provide fairly equal pay increases (as a percentage) across the layers of their organizations in 2027, with 3.5% average raises slated for executives and nonexempt employees, and 3.6% average raises planned for “other managers” and exempt employees. Those figures continued to reflect a more normal trend (increases in the range of 3% to 3.5%) after three years (2022 through 2024) near or above 4% (see below).

U.S. Respondents
Year	Executives	Other Managers	Exempt	Nonexempt
2027 Projection	3.5%	3.6%	3.6%	3.5%
2026 Actual	3.5%	3.6%	3.6%	3.5%
2025 Actual	3.5%	3.7%	3.7%	3.6%
2024 Actual	3.8%	4.0%	3.9%	3.9%
2023 Actual	4.1%	4.3%	4.3%	4.3%
2022 Actual	4.0%	4.4%	4.4%	4.4%

For 2027, Canadian respondents generally anticipate a slightly broader range, spanning 3.3% for nonexempt employees to 3.8% for exempt employees (see below).

Canadian Respondents
Year	Executives	Other Managers	Exempt	Nonexempt
2027 Projection	3.5%	3.7%	3.8%	3.3%
2026 Actual	3.4%	3.6%	3.5%	3.2%
2025 Actual	3.4%	3.6%	3.3%	3.2%
2024 Actual	3.6%	3.8%	3.6%	3.5%
2023 Actual	3.8%	4.0%	4.0%	3.9%

Budget Strategies by Organization Size

Examining data by organization size (number of employees), the report projected that, in the U.S., the largest 2027 average total increases would come from employers with between 251 and 500 workers and the smallest average total increases would come from those with between 50,001 and 100,000 workers (see below).

Planned Salary Budget Increases — Total Increases (U.S.)
Org Size (# of Employees)	Executives	Other Managers	Exempt	Nonexempt
Less than 250	3.6%	3.6%	3.7%	3.5%
251 to 500	3.9%	3.8%	3.8%	3.7%
501 to 1,000	3.7%	3.7%	3.7%	3.7%
1,001 to 2,500	3.3%	3.4%	3.4%	3.4%
2,501 to 5,000	3.5%	3.5%	3.5%	3.5%
5,001 to 10,000	3.3%	3.4%	3.5%	3.4%
10,001 to 25,000	3.4%	3.3%	3.4%	3.3%
25,001 to 50,000	3.4%	3.4%	3.4%	3.4%
50,001 to 100,000	3.2%	3.1%	3.1%	3.1%
More than 100,000	3.4%	3.7%	3.7%	3.7%

Budget Strategies by Industry

Examining data by industry in the U.S., the report projected business services, energy and utilities, and financial services to be among the sectors with higher-than-average total increase outlays (see below). Aerospace and defense, construction, and retail and wholesale are among the sectors that are projected to lag.

Planned Salary Budget Increases — Total Increases (U.S.)
Industry	Executives	Other Managers	Exempt	Nonexempt
Aerospace and defense	3.3%	3.3%	3.3%	3.3%
Business services	4.0%	4.0%	4.1%	3.9%
Construction	3.2%	3.2%	3.2%	3.2%
Education, government and nonprofit	3.4%	3.3%	3.4%	3.3%
Energy and utilities	3.9%	3.9%	3.9%	3.9%
Financial services	3.8%	3.8%	3.8%	3.8%
Healthcare	3.5%	3.5%	3.5%	3.5%
Hospitality and leisure	3.3%	3.5%	3.5%	3.6%
Insurance	3.5%	3.5%	3.5%	3.5%
Manufacturing	3.5%	3.6%	3.6%	3.5%
Membership associations	*	4.0%	4.0%	4.0%
Real estate	4.6%	4.4%	*	*
Retail and wholesale	3.4%	3.3%	3.3%	3.3%
Software and networking	3.4%	3.4%	3.4%	3.3%
Telecom	*	*	3.8%	3.8%
Transportation	3.4%	3.3%	3.4%	3.3%
Other	3.8%	3.9%	3.9%	3.6%

* = limited sample size

Budget Strategies by U.S. Geographic Region

Examining data for U.S. geographic regions, employers within the Mountain States are predicted to generally provide the largest 2027 average total increases, while those in the Northeast are predicted to lag (see below).

Planned Salary Budget Increases — Total Increases (U.S.)
Region	Executives	Other Managers	Exempt	Nonexempt
Midwest	3.5%	3.5%	3.6%	3.5%
Mountain States	3.9%	3.7%	3.7%	3.8%
Northeast	3.4%	3.4%	3.4%	3.4%
South	3.6%	3.6%	3.6%	3.5%
West Coast	3.6%	3.6%	3.7%	3.6%

(Top-level results from the WorldatWork 2026-2027 Salary Budget Survey report are now available to the general public. The full report — covering base salary increases and merit budgets for 22 countries and in-depth salary budget insights for the U.S., Canada, India and the United Kingdom — is 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).

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