U.S. companies plan to keep salary budgets stable in 2027, projecting a 3.4% increase that slightly trails the actual 3.5% hike seen in 2026, according to a new report from London-based advisory firm WTW.
Employers are taking a cautious approach to salary planning, citing cost management pressures and inflationary concerns as primary factors. The survey found that 32% of companies point to cost management, while 28% and 27% cite a tight labor market and inflation respectively.
More than one-third of companies are adjusting their compensation programs, moving away from broad-based increases toward more targeted strategies. This shift includes providing higher salary ranges and offering bonuses or spot awards for key employees, according to the firm.
Compensation remains important, but employers are being more deliberate about their spend, WTW senior director of product strategy and rewards data intelligence Brittany Innes wrote in an email.
Salary budgets refer to the total amount an organization sets aside for annual salaries across the workforce, while salaries refer to what individual employees actually earn. Innes noted that a 3.4% salary budget increase does not translate to every employee receiving a 3.4% pay increase.
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The projected 2027 increase is higher than the 2.8% cost-of-living adjustment applied to Social Security benefits in 2026, though salary budgets are not typically designed as direct inflation adjustments, Innes explained.
Salary budgets have remained in a relatively narrow range over the past few years after a period of unusually high increases following the COVID-19 pandemic. Between 2022 and 2026, actual reported increases in the U.S. have consistently exceeded 3%, with the highest actual increase reported in 2023 at 4.3%. After the pandemic, employers recalibrated to a more sustainable compensation environment, though talent-related pressures persist.
Long-term incentives or one-time spot bonuses will not impact the annual budget the same way merit or market adjustments do, Innes said. This financial constraint forces organizations to ask where talent really moves the needle for them and concentrate their funds there.
Employers are adopting more precise, performance-driven pay strategies that target the roles, skills and talent segments that matter most. When companies are competing for specific talent in a tight market, across-the-board raises become economically inefficient, Innes added.
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