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The 2026 Pay Raise Forecast: 5 Critical Compensation Trends That Will Determine Your Salary Increase

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The average salary increase budget for 2026 is projected to stabilize at 3.4% to 3.5% in the United States, marking a return to near pre-pandemic norms after several years of elevated wage growth. This forecast, based on the latest Q4 2025 and early 2026 salary budget surveys from leading compensation experts, suggests that while the era of record-high raises is cooling, employers are still committing to pay increases to maintain competitive compensation and manage the persistent cost of labor.

For employees planning their career trajectory and financial future in late 2025 and 2026, this number is the critical baseline. However, the true story of your pay raise will not be the average, but rather how your company implements its merit increase budget and how your specific role aligns with the five major compensation trends dominating the 2026 labor market. The difference between the average 3.5% and a high-performing raise of 4.5% or more will depend entirely on these strategic shifts.

The 2026 Salary Increase Baseline: Key Forecasts and Compensation Entities

The overall outlook for 2026 is characterized by stability and strategic allocation of funds. Multiple authoritative organizations in the field of compensation and human resources have converged on a very tight range for the Total Salary Increase Budget. This budget includes all forms of base pay increases, such as merit, cost-of-living adjustments (COLA), and promotional increases.

Here is a summary of the consensus forecast for the U.S. average salary increase budget for 2026:

  • Average Total Salary Increase Budget: 3.4% to 3.5%
  • Average Merit Increase Budget: 3.2% to 3.3%

This stability is a direct result of a moderating economic environment. While the U.S. economy is expected to continue its expansion in 2026, with real GDP growth projected around 2.0% to 2.2%, the intense pressure of the post-pandemic labor market has begun to soften. Unemployment is expected to peak slightly higher in 2026, though wage growth is forecasted to remain above the levels seen before the pandemic. This allows companies to temper their overall spending on base pay increases, shifting their focus to more targeted, performance-driven rewards.

Key compensation entities and surveys contributing to this forecast include:

  • Mercer’s Compensation Planning Survey
  • WorldatWork’s Salary Budget Survey (SBS)
  • Payscale’s Compensation Planning Report
  • The Conference Board’s Salary Increase Budgets Survey
  • WTW (Willis Towers Watson) Salary Budget Planning Survey

5 Critical Compensation Trends Driving 2026 Salary Increases

The 3.5% average is simply the starting point. The real increases—the raises that matter for top talent and high-demand roles—will be determined by five specific trends in how organizations are managing their compensation strategy in 2026.

1. The Shift to Performance-Based Pay and Differentiated Rewards

In 2026, the days of "spreading the merit budget" evenly across all employees are rapidly ending. Companies are becoming far more strategic in how they allocate their merit increase budget. This trend emphasizes pay differentiation, meaning high performers will receive raises significantly above the 3.5% average, while average performers will receive less, or just enough to cover a minimal cost-of-living adjustment (COLA).

The focus is on maximizing the impact of every dollar spent. This means:

  • Top Performers: Expected to receive raises in the 4.5% to 5.5% range, or even higher, to ensure retention.
  • Variable Pay: Increased reliance on incentive pay, retention bonuses, and spot bonuses rather than permanent increases to base salary.
  • Manager Training: Greater investment in training managers to effectively deliver and justify performance ratings and pay decisions, linking individual contribution directly to the size of the raise.

2. Strategic Investment in High-Demand Roles and Industry Outliers

Not all industries will adhere to the 3.5% average. Sectors facing critical talent shortages or rapid technological change will continue to offer higher salary increase budgets to remain competitive. This is where the highest wage growth will be seen.

  • Technology/IT Sector: Roles focused on cutting-edge fields are projected to see the largest increases. For example, salaries for AI/ML Engineers and Data Scientists are forecasted to see increases as high as +4.1% or more, driven by massive internal investment in Artificial Intelligence (AI).
  • Healthcare and Financial Services: These sectors are consistently cited as areas of continued high growth and demand, suggesting their overall salary budgets will likely exceed the national average to attract and retain specialized talent.
  • Geographic Differentials: Companies are increasingly using geographic pay policies to adjust salaries based on the local cost of labor and competitive market rates, rather than a single national standard.

3. The Priority of Salary Structure Updates (Internal Equity)

A major trend for 2026 is the strategic use of salary structure updates to address internal pay equity and wage compression. Over the last few years, high external hiring rates and large raises for new employees have caused pay disparities between long-term staff and new hires.

The WorldatWork 2025–2026 Salary Budget Survey reports an average structure update forecast of 2.8%. This means organizations are:

  • Adjusting Pay Ranges: Raising the minimum and maximum of existing salary grades to keep pace with the market.
  • Addressing Compression: Using targeted, off-cycle increases or promotional increases to bring the pay of tenured employees up to a competitive level compared to their newer colleagues.

4. Leveraging Employee Benefits as a Compensation Differentiator

With base pay increases stabilizing, employee benefits are becoming a crucial tool for total rewards differentiation. As organizations manage the rising cost of labor, they are emphasizing the value of non-monetary and non-salary perks.

A key factor here is the rising cost of healthcare. Organizations are projecting a significant hike in health care costs for 2026, which will push the average total health benefit cost to higher levels per employee. Companies that absorb more of these rising costs—or offer superior benefits like enhanced retirement contributions, flexible work arrangements, or mental health resources—are effectively offering a higher total compensation package, even if the base pay raise remains at 3.5%.

5. Managing Economic Uncertainty and Labor Market Softening

The overarching theme for 2026 compensation planning is caution due to economic uncertainty. While the economic outlook is positive, the softening labor market means companies are less desperate to hire and retain at any cost compared to 2022 and 2023.

The 3.5% forecast reflects this cautious approach. Employers are planning for a solid, but not excessive, increase, giving them flexibility to:

  • Retain Budget: Hold back a portion of the total budget for mid-year adjustments, retention efforts, or unexpected market shifts.
  • Focus on Cost of Labor: Maintain a close watch on the overall cost of labor to protect profit margins as economic expansion slows.

Preparing for Your 2026 Compensation Review

The average raise percentage for 2026 is a strong indicator of market stability, but it is not a ceiling. The 3.4% to 3.5% figure is the mean of the salary increase budgets being set by major corporations.

To ensure your pay increase exceeds this average, you must focus on the elements that compensation experts are prioritizing in 2026:

  • Document Performance: Provide clear, measurable evidence of your impact, especially on key company goals, to justify a raise above the merit increase budget average.
  • Benchmark Your Role: Research industry-specific salary forecasts for your specific job title, especially if you are in a high-demand field like Technology, Data Science, or specialized Healthcare.
  • Understand Total Rewards: When evaluating your compensation, consider the entire total rewards package, including employee benefits, variable pay, and your company’s commitment to internal equity through salary structure updates.

By understanding that 2026 is the year of strategic, differentiated pay, you can position yourself to be one of the employees who receives a raise well above the national average.

The 2026 Pay Raise Forecast: 5 Critical Compensation Trends That Will Determine Your Salary Increase
What is the average raise percentage for 2026?
What is the average raise percentage for 2026?

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