U.S. employers project an average 3.5% increase in their salary budgets for 2026, a tick below the 3.6% climb they’re experiencing this year.
Despite inflationary pressures, the stagnant level of budget hikes reflects both concern over the economy and labor-market conditions that favor employers. That’s according to Payscale, a provider of compensation data and software, which surveyed 1,551 compensation managers in the United States and Canada.
Only 16% of U.S. organizations anticipate a 2026 salary increase budget that is higher than this year’s. The same proportion expects the budgets to be lower next year, while 68% believe they’ll hold steady.
Among those anticipating lower budgets, 66% cited economy-related worries as the primary reason. In previous years, the leading reason was that higher pay increases were given the year before due to rising labor costs and inflation, Payscale wrote in its survey report.
For those foreseeing higher budgets, concern about increased competition for labor has dropped dramatically as the primary reason, by 19%, compared to last year. Overtaking it as the leading reason is a change in compensation philosophy or competitive positioning.
By industry, the highest expected increase in average base pay in 2026 is in engineering and science, at 4.2%. Right behind at 4% is business services. The lowest increases are food/beverage/hospitality (3%), education (3.1%) and arts/entertainment/recreation (3.2%).
Comparing 2026 and 2025 base-pay growth rates, the biggest upward percentage-point movement is expected to be in retail/customer service (a half a point, from 3% to 3.5%) and telecommunications (from 2.9% to 3.4%).
The largest declines are expected to be in technology (from 4% to 3.5%) and arts/entertainment/recreation (from 3.7% to 3.2%).
The survey, conducted in May and June, also asked participants to report salary budget changes for employees in other countries where they manage pay. The runaway leader in expected increases is India (8.5%), with Poland (4.9%), South Africa (4.9%) and China (4.7%) well behind. The lowest are anticipated in Finland (2.8%), Japan (3.1%) and Sweden (3.2%).
As to types of pay increases, 87% of U.S. employers grant them for merit, 73% for promotions, 39% due to changes in salary structure in light of current market rates and 26% for cost-of-living adjustments.
Almost two-thirds (64%) of those polled said their organization changes salary structure every year, and 86% do so at least every three years.
Meanwhile, Canadian compensation managers reported lower expected salary-budget growth for 2026 (3.3%) than did their U.S. counterparts (3.5%). Those numbers are both 0.1% lower than survey respondents’ actual 2025 growth rates.
