When it comes to salary budget increases in 2027, a new survey found that employers will continue the trend of shifting toward more targeted, performance-driven pay strategies.
According to WTW’s latest Salary Budget Planning Report, average salary increase budgets for U.S. companies in 2027 are expected to remain stable at 3.4%, slightly lower than 2026’s actual increase of 3.5%. Among other findings, three primary ones include: cost management pressures (32%), a tighter labor market (28%) and inflationary concerns (27%). All three continue to drive employers’ cautious approach to salary planning, according to WTW.
WTW conducted the survey from March to May 2026, with 1,650 U.S.-based organizations responding. In total, 34,024 responses were received from employers across 156 countries worldwide.
“Salary budgets may be holding steady, but the way organizations are using those dollars is changing significantly,” says Brittany Innes, senior director, Rewards Data Intelligence, WTW. Innes adds that employers are moving away from broad-based increases and toward “more precise,” performance-driven pay strategies that target the roles, skills and talent segments that matter most.
“When salary budgets are stable, every pay decision becomes more important,” she explains. She adds that employers are asking tougher questions about where compensation investments will have the greatest impact and are becoming more intentional about directing dollars toward critical talent, in-demand skills and priority business needs.
“The HR leaders who get this right are the ones who understand where talent can drive the most value and align their pay investments accordingly,” Innes says. “That requires HR leaders to work closely with business leaders and make compensation decisions through the lens of long-term business priorities, not just short-term staffing needs.”
See also: As 2026 salary budgets remain flat, how employers are ‘rethinking’ value propositions
A shifting approach to compensation strategy
This shift is already reshaping how employers manage compensation programs, according to WTW’s survey. More than one-third (33%) are adjusting their programs, with another 15% planning future changes. Other changes include: hiring at higher salary ranges (36%), increasing the use of retention bonuses or spot awards to help secure key employees (34%) and raising starting salary ranges (32%).
At the same time, economic uncertainty and financial pressures are contributing to steady retention levels, with most employees (69%) remaining with their current employers and only 22% of companies adding headcount. Rather than relying on hiring alone, the survey found that employers are focusing on other ways to strengthen the employee value proposition, including improving the employee experience (47%), expanding training opportunities (40%) and enhancing health and wellness benefits (38%).
Lori Wisper, senior managing director, Work & Rewards, WTW, explains that salary increase budgets reflect the current balance between supply and demand of labor, adding that while the focus is often on the low demand for labor, most leaders forget that the country is still in the throes of low supply.
“Employers will continue to experience salary increases in the ‘land of 3%’ for the foreseeable future given these dynamics,” she adds. “Those who focus on using that money wisely will be the ones that win the inevitable war for talent once demand picks up.”
According to Wisper, there are a few strategies employers can follow to ensure their pay programs continue to attract, retain and motivate critical talent.
“Theoretically, base salary increases are meant to enable employers to keep up with the market as the pay continues to change over time,” she says. “Therefore, if deployed effectively, salary increases should work to retain even the most critical employees.”
In fact, she says, retention is what salary increases do best, but in terms of attracting and motivating talent, salary increases are less effective. And that is where other rewards come into play, she says.
“Organizations should be using the full power of their overall reward programs to keep critical talent happy,” she says, adding that it may mean even further retention devices such as long-term incentives, motivational rewards—such as career advancement and development and other elements, including special high-potential programs like mentoring/sponsorship and opportunities to work on special projects.
“In our view, a strategic rewards program requires a compensation philosophy that reflects who the organization is, its purpose, mission and values, as well as its business and people strategies,” Wisper says.
Finally, she notes, a compensation strategy should be developed that outlines a three-to-five-year roadmap of how to make pay reflect the unique organization and what it is trying to accomplish as a business.
“The base salary increase process is a small part of this overarching strategy,” she says. “The broader picture should reflect how an organization wants its employees to experience pay programs, and what it is trying to accomplish through them.”
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