Shrinkage Sign: Mercer Says Actual Pay Increases Trailed Predictions

Annual salary increases in 2026 paid out slightly below earlier projections, according to the latest Mercer QuickPulse U.S. Compensation Planning Survey, published April 29.

Based on the responses from 756 employers, the consulting firm found the mean merit increase paid to employees was 3.1%, while total increases landed at 3.4%. In October 2025, increases were projected to be 3.2% for merit and 3.5% for total increases.

Only 4% of the survey participants said they gave equal, across-the-board salary increases (otherwise known as the “peanut butter” approach).

According to Mercer, the latest results suggest salary budgets are shrinking.

Sixty-one percent of the employers surveyed in October anticipated the economy would have a moderate to significant impact on 2026 compensation decisions. Employers also reported they would remain committed to prioritizing skill and talent development (34%), market competitiveness (31%) and compensation adjustments (24%).

“Overall, U.S. employers delivered annual compensation increases in line with what they budgeted last fall — a sign of steady and disciplined pay planning,” said Tauseef Rahman, a U.S. workforce rewards solutions leader at Mercer. “Projections were essentially spot-on, landing only a tenth of a percent above actual payouts for both merit and total increases. Even as the economic picture shifts, employers are sticking to their budgets, focusing on rewarding performance, staying competitive and keeping top talent.”

Trends Across Industries

According to the latest survey, the high-tech sector had the highest average total increase percentage, at 3.6%.

Several industries landed at the bottom: Transportation equipment and retail as well as wholesale both had an average total increase of 3.1%, and chemicals and other manufacturing both saw average total increases of 2.9%.

Healthcare services held steady, averaging a 3.0% increase in merit pay and 3.3% increase in total pay.

Salary Structures and Promotions

While most respondents used a formal salary structure where each job is assigned to a pay grade based on market data, 56% of those polled also use geographic differentials.

Just under 60% plan on adjusting their salary structure in 2026 by an average of 2.6%.

Concerning promotions, surveyed employers expect to promote 8.6% of their workforce this year (salaried workers 9.2%, hourly workers 8.2%). By comparison, in March 2025, employers expected to promote roughly 10% of their workforce. The expected average pay increase for a one-level promotion is about 8.5%, which is in-line with last year's projections.

Key Drivers

Eighty-nine percent of surveyed organizations reported individual performance was a key driver for increases in 2026.

Other factors included:

• Relationship of current salary level to new grade midpoint or market value (79%)
• Internal equity (68%)
• No factors considered (4%)

Editor’s Note: Additional Content

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• Employee Compensation
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