It’s that time of year again – the start of the compensation planning season. Will budgets go up for 2026 or continue the downward trend that we’ve seen over the past couple of years?

Let’s take a look!

A look at preliminary 2026 salary budgets

Earlier this year, typically sometime in February – April, employers delivered a mean of 3.2% in merit increases and 3.5% in total increases. While 88% report that their 2026 salary increase budgets are preliminary, the majority feel budgets will be comparable to 2025.

Specifically, employers are projecting¹ a mean merit increase budget of 3.1%, and 3.5% mean total increase, including zeros.

There is a bit of variation when you look at what different industries are projecting. Energy and Insurance/Re-insurance are both slightly above the national mean for merit budgets at 3.3%. On the lower end, Healthcare continues to be amongst the lowest merit budgets at 3.0% along with High-Tech, Other Non-Manufacturing and Retail & Wholesale.

The industry projections for mean total increase budgets follow a similar pattern with the exception of Banking/Financial Services which is projecting a merit increase budget lower than the national average at 3.1% but a higher than national average total increase budget at 3.7%.

For the past several years, this initial projection has tended to be slightly different, typically higher, than what companies project in October, and finally deliver in Q1 of the new year.

A change in expected promotions

Employers are projecting that they will promote 8.1% of the employee population, on average, in 2026. This is lower than what they projected to be promoted in the 2025 performance year. It will be interesting to see how much of the population was actually promoted this year – you can find that in the March 2026 version of the Compensation Planning survey.

Employers consider a variety of things when it comes to determining the size of the monetary increase accompanying a promotion. The most common are:

• Relationship of current salary level to new grade midpoint or market value
• Internal equity relative to other peers in the new jobs
• Individual performance and/or performance rating.

Hot topics of today

Of course, we had to ask about the economy – 20% of companies do anticipate the external economic factors to have a significant impact on their compensation decisions over the next fiscal year. Specifically, organizations expect certain things to increase in importance with skill & talent development, market competitiveness, and compensation changes being among the top responses. As for things that will become less of priority, hiring was mentioned the most, but only by 17%.

When asked what their organizations’ human resources teams are focusing on in terms of total rewards, the most frequent response was salary benchmarking (63%), followed by job architecture effectiveness, and communicating rewards to employees. A few other basics round out the top six.

As for pay transparency, consistently half of participants comply with laws and have no plans to broaden transparency beyond what is required. However, the number of respondents that are including pay ranges in jobs postings nationally has increased from 29% in 2024 to 36% today.

Looking ahead

Typically, HR and compensation teams are using the next several weeks to work with their finance and leadership teams to home in on the right merit and total increase budgets. That means refreshing salary benchmarking, identifying current versus target market positioning, assessing performance, developing budgets amongst many other activities.

Our next Compensation Planning survey opens for participation mid-October. By participating you will receive the revised, further developed merit and total increase projections along with all the other responses in the report at no cost to you.

Sign up to be notified when the next survey opens and give us a call at 855-286-5302 for additional assistance.