With cost containment a looming influence, new research finds that when it comes to salary increase budgets for 2026, few organizations are planning any big changes.
WTW’s most recent Salary Budget Planning Report uncovered that the average salary increase budgets for U.S. companies are expected to remain flat next year at 3.5%, the same as the actual budgets of 2025.
WTW’s Rewards Data Intelligence practice conducted the survey this spring across 157 countries worldwide, with more than 29,128 responses, including nearly 1,600 from the U.S.
While most organizations weren’t anticipating a change in budget, according to WTW’s Brittany Innes, director, Rewards Data Intelligence, 31% of those surveyed are projecting lower salary increase budgets than last year. Of those, the most common reasons cited include an anticipated recession or weaker financial results and concerns related to cost management. Of the minority projecting higher salary increase budgets, most pointed to tight labor markets and inflationary pressures.
Even without big salary increases, employees are staying put. According to WTW, fewer organizations this year found employee stability challenging compared to the past two years. Less than one-third of organizations (30%) reported difficulty attracting or retaining employees, representing a decrease of 11 percentage points since 2023.
Yet, that’s not to say employers aren’t working to meet employee needs without significant raises. Innes says that 75% of companies with U.S. operations reported recent or planned investments to improve the overall employee experience, and 62% are increasing targeted workforce development opportunities.
“This suggests that leaders are recalibrating to drive engagement and performance despite limited budgets,” she says. “It’s a sign that companies aren’t pulling back; rather, they’re reallocating, rethinking and refining how they create value for their people.”
Evolving the compensation strategy
Innes adds that despite stagnant budgets, WTW is seeing employers take added meaningful action to strengthen their compensation approach. For instance, nearly half of the responding organizations that told WTW that they plan to review their compensation programs have already conducted a full compensation review or reviewed pay for specific employee groups, and many more plan to do so in the months ahead. What’s changing is the way they are deploying their pay strategy, she notes.
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“Instead of across-the-board increases, companies are raising starting salaries, bringing in talent higher in the respective pay range and enhancing retention incentives,” Innes says. These structural moves reflect a deeper shift: Compensation planning is becoming more responsive, more targeted and more aligned with evolving talent needs.
Also, Innes says, while top-line budgets are generally holding steady, the data says the real shift is happening beneath the surface, as 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,” Innes says.
A broader view of investing in employees
According to the report, current economic conditions are a constant factor in the changing landscape for compensation.
“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,” says WTW’s Lori Wisper, managing director, Work & Rewards.
She adds that these include career development, wellbeing, flexibility and equity—areas that are critical for performance, retention and resilience in a shifting market.
“We need to look beyond the headline,” Innes adds. “Although budgets are largely remaining flat compared to previous years, there’s much more to the story.”
She explains that the “investments” employers are making look different than they did just a few years ago, thanks in part to economic uncertainty and concerns over financial performance.
“With tighter budgets, many U.S. employers are leaning into alternative ways to strengthen the employee value proposition,” Innes says.
