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 anticipate their budgets will be comparable to 2025.
Specifically, employers are projecting 1 a mean merit increase budget of 3.1%, and 3.5% mean total increase, including zero increases. For the 68 Retail & Wholesale organizations that participated in the survey, their projected budgets are slightly below the national, all company average both for merit increases, at 3.0%, and for total increases, at 3.3%.
For the past several years, this initial projection has tended to be slightly different, typically being higher than what companies project in October and finally deliver in 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 is actually promoted this year — you can find the answer in Mercer’s March 2026 version of the Compensation Planning survey.
Employers consider a variety of factors 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 that external economic factors will have a significant impact on their compensation decisions over the next fiscal year. Specifically, organizations expect certain aspects to increase in importance — with skill & talent development, market competitiveness, and compensation changes being among the top responses. As for what will become less of a priority, hiring was mentioned the most, but only by 17%.
When asked what their organizations’ HR 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 6.
As for pay transparency, half of participants consistently report that they comply with laws and have no plans to broaden transparency beyond what is required. However, the proportion 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, and developing budgets, among 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.
1All projections are means, including zero increases.