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By Hugh Cameron
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While Americans' salaries are projected to grow at a steady pace in 2026, following years of volatile market adjustments, some changes to their compensation are anticipated next year.
According to the results of the August Compensation Planning Survey by consulting firm Mercer, U.S. employers are projecting a "merit increase budget"—money set aside for salary hikes—of 3.1 percent in 2026, compared with 3.2 percent in 2025. Meanwhile, the "total increase budget," representing the overall average increases in compensation, is expected to see flat growth of 3.5 percent.
Why It Matters
Salaries have failed to keep pace with inflation in recent years, with wages rising by 21.5 percent since the beginning of 2021 while prices climbed 22.7 percent, according to a Bankrate analysis of Labor Department data. As Americans face heightened financial pressures in 2025, and with overall confidence in the U.S. economy declining, the prospect of promotions or better compensation will be a key concern for many.
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What To Know
According to Mercer's report, U.S. employers expect to promote around 8.1 percent of the employee population in 2026.
Nearly all U.S. companies (82 percent) anticipate "economic factors" affecting their compensation decisions in the coming fiscal year. Of these, 20 percent believe the effects will be significant, 46 percent expect these to be moderate and 16 percent foresee a minimal impact, with 16 percent unsure and only two percent expecting no impact whatsoever.
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In terms of what employers look for when considering a potential increase, 91 percent of organizations said their decisions would be influenced by the disparity between an employee's current salary and the midpoint of their pay grade, as well as market salary comparisons. A similar number (87 percent) said they would assess salaries relative to those of other employees with similar roles, while 62 percent said this would depend on an individual's performance.
"The most significant challenge for compensation planning in 2026 is the growing divergence in the labor market," Mercer wrote in a blog post. "We're no longer in a situation where all jobs are in high demand. Instead, we're seeing a clear separation between sectors that are heating up and those that are cooling down."
Mercer notes that wages in manufacturing, transportation, engineering, and construction are expected to keep rising, given that "demand for skilled labor in these areas far outstrips supply."
However, for white collar jobs especially in the tech sector, artificial intelligence advancements may automate away certain roles while creating new ones which "require highly specialized skills."
"While top AI talent can command a significant premium, we're seeing a softening in the broader tech job market, especially for entry-level and non-specialized roles," the report read. "This trend is likely to continue, forcing companies to be more discerning in their compensation spending for tech talent."
By location, on-site workers may be in for the biggest pay bumps. Mercer's survey revealed that those who travel into the office are on track for an average increase of 4.1 percent between 2024 and 2026, which drops to 4.0 percent for hybrid employees and 3.6 percent for those who work remotely.
What People Are Saying
Mercer, in its recent report, wrote: "The post-pandemic frenzy of double-digit salary increases and frantic market adjustments is behind us. The economic environment remains foggy, with uncertainty around tariffs and a labor market that, while softening in some areas, remains remarkably resilient in others. Now we're seeing compensation budgets that look more familiar, settling closer to historical norms. "
What Happens Next?
Mercer is set to release the results of another survey on employers' projected salary changes for 2026 in November.
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