WTW: 2026 U.S. Salary Increase Budgets Will Hold Steady at 3.5%

Referring to the current political and business environment as a “time of change,” an April report by consulting firm WTW on widescale U.S. policy shifts pointed to American workers’ concern about the state of their anticipated salary increases. In that survey, 56% of surveyed employers indicated their workforces are worried about base pay increases. Respondents tried to temper those fears, even slightly, with 48% stating they anticipated no impact to this year’s projected salary increases but some impact on their 2026 budget, and 28% anticipating no impact this year or in 2026.

With that as a backdrop, WTW released its Salary Budget Planning Report on Tuesday, July 8, which, on its face, could perhaps be summed up as: the more things change, the more things stay the same. Some complex activities are supporting — and even countering — that smoothness.

According to the report, the composite look from 1,569 surveyed U.S. organizations shows average salary increase budgets for 2026 will remain stable at 3.5%, matching American employers’ actual increases for 2025. (WTW had initially predicted 3.7% increase budgets for 2025.) The firm’s expanded outlook report for 2026 reflected similar stability for select countries outside of the U.S.

“While top-line budgets are generally holding steady, the real shift is happening beneath the surface,” said Brittany Innes, the director of rewards data intelligence at WTW. “Organizations are being more deliberate about how they allocate pay, where they focus investment and what outcomes they expect to drive. Employers are no longer simply reacting to economic signals; they’re reimagining how to best support broader business goals despite uncertainty.”

(NOTE: WorldatWork will be releasing the results of its annual Salary Budget Survey in the coming weeks. Watch for a full article from Workspan Daily after the report’s release.)

Solid Pay Raises as Part of a Holistic Total Rewards Emphasis

The WTW research identified general U.S. labor market stability, which may be a factor in the steady salary increase budget projection.

In contrast to data from 2023 and 2024, this year’s report found fewer organizations considered employee stability as “challenging.” Less than one-third of organizations (30%) reported difficulty attracting or retaining employees — a decrease of 11 percentage points since 2023.

While turnover is relatively low, respondents cited workforce burnout and disengagement as continuing concerns. As a result, these employers have sought to bolster total rewards. Besides generally keeping pay increases above the 3% range (to remain competitive and in line with recent years’ outlays), they have taken steps to more strongly support workers by:

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

“As employers navigate continued economic uncertainty, ongoing increases in labor costs and the changing needs and expectations of employees, they are positioning themselves for what is to come and making investments in their workforces that go beyond pay raises,” said Lori Wisper, WTW’s managing director for work and rewards. “These [investments] include career development, well-being, flexibility and equity — because these are critical for performance, retention and resilience in a shifting market.”

While seeking to underscore an ambitious and holistic total rewards program, pay remains under significant organizational scrutiny. WTW reported that average annual payroll expenses increased 3.6% in 2025, and 7 in 10 surveyed U.S. organizations reported total annual payroll expenses are higher than 2024.

That scrutiny is bearing itself out in recent compensation analyses and actions by survey respondents. The report identified that:

• 3 out of 5 organizations adjusted their salary budgets during the last pay cycle.
• 53% reported no change between their anticipated and actual pay budgets in 2025.
• 31% are projecting lower salary increase budgets in 2025 vs. 2024.

Toward the last bullet point, the most commonly cited reasons for downshifts were an anticipated recession or weaker financial results (51%) and concerns related to cost management (45%).

Among surveyed organizations projecting higher salary increase budgets in 2025, the most common reasons are tight labor markets (59%) and inflationary pressures (30%).

Employers, in general, are factoring labor market and inflationary pressures in compensation program adjustments. Common actions have included:

• Conducting a compensation review of all employees (50%);
• Performing a compensation review of specific employee groups (48%);
• Hiring people higher in relevant salary ranges (45%);
• Enhancing their use of retention bonuses or spot awards (43%);
• Raising starting salary ranges (40%); and,
• Targeting base salary increases for specific employee groups (37%).

A Glimpse at Compensation Practices Outside of the U.S.

In total, WTW’s salary budget planning research encompassed nearly 30,000 responses from participants representing employers in 157 countries.

Most of those country-based forecasts resemble that for the U.S.: 2026 salary increases that are relatively flat compared to prior year. Most similar were Canada, France, Germany and the United Kingdom, which had forecast increases between 3.2% and 3.6% (see below).

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