Beyond the average: Build a targeted 2027 comp strategy 

If current projections hold, U.S. employers will enter a fourth consecutive year of relatively stable salary increase budgets. Merit increase budgets are projected to average 3.2% in 2027, with total salary increase budgets at 3.5% - only 0.1% above actual 2026 salary increases.

That consistency obscures the reality that employers are operating in a constrained environment where economic conditions remain uncertain and workforce pressures vary depending on industry. The national average provides a useful reference point, but it cannot answer the more important question: What budget does your organization need to be successful?

For total rewards leaders, 2027 planning is less about chasing a new headline number than making sharper choices within a familiar range. Across industries, persistent cost pressure calls for disciplined spending, but also creates an opportunity to invest more intentionally, optimize existing programs, and align total rewards more closely with business priorities and workforce needs.

_{Source: Mercer QuickPulse® U.S. Compensation Planning Survey, July 2026. Averages include organizations reporting zero increases.}

After falling from the 2023 peak, budgets have remained within a narrow range. Employers projected 3.2% merit and 3.5% total increases for 2026, but actual budgets finished 0.1 percentage point lower, further supporting disciplined spending rather than renewed escalation.

Stability provides planning predictability, but it should not be confused with stasis. When the overall pool is not expanding, allocation quality matters more. Organizations have less room to rely on uniform increases and more reason to identify the roles, skills, and employee groups where additional investment will produce the greatest value.

The national average can inform planning, but it cannot determine how an organization should compete. Employers must decide whether to position pay broadly at market, lead the market, or differentiate selectively for roles and skills where talent risk is greatest. That choice should reflect labor needs, affordability, business performance, and current market position. Applying the same approach everywhere may leave critical talent exposed while directing scarce dollars to areas with less competitive pressure. Historical increases vs. market also come into consideration. If organizations have historically provided below-market increases, they may have fallen behind in terms of market competitiveness, and the projected increase may be insufficient.

The industry results illustrate the point. For 2027, projected merit budgets range from 2.9% to 3.4%, while total increase budgets range from 3.1% to 3.8%. Consumer Goods, Health Care Services, and Retail & Wholesale trail the national market for merit budgets. High Tech, Banking/Financial Services, Energy, Insurance/Reinsurance, and Services report some of the largest total budgets.

Economic conditions are clearly affecting the planning conversation. Eleven percent of organizations expect a significant impact on compensation decisions, and 46% expect a moderate impact. Another 21% anticipate at least a minimal impact. Only 3% expect no impact, while 19% remain unsure.

Yet the national budget projection remains near recent levels. This points to a more nuanced response including greater scrutiny, more scenario planning, and more selective use of compensation dollars. The reported reasons for increases support that interpretation. Only 10% of companies expect their salary increase budgets to be higher in 2027 vs. 2026. Of those companies, the primary factors driving the anticipated increase are attraction and retention challenges (60%), the need for market adjustments (42%) and inflationary pressure (38%).

The budget process is still in its early stages.

The latest results reinforce a pattern already visible in the 2026 report . Skill and talent development and market competitiveness are the leading areas of increased prioritization. Among organizations reducing emphasis, hiring and promotions are ranked lowest priority.

That combination suggests organizations are looking inward to build capability and retain talent rather than relying primarily on external hiring.

Total rewards leaders therefore need to ensure that their rewards budgets are sufficient to drive the capability building and retention in areas that are most critical to the organization.  Furthermore, development is more likely to support retention when employees can see a credible path from capability to opportunity even when the next step is not a traditional promotion.

As allocation becomes more targeted, compensation infrastructure matters more.

The latest survey also places job evaluation at 31%, AI and technology for rewards management at 29%, and pay equity assessments at 26%. Together, the priorities make a balanced technology case: automation can streamline the process and surface better insights, but it cannot compensate for inconsistent job structures, unreliable market data, or unclear decision criteria.

Communication remains equally important. In a more transparent pay environment, organizations do not always need to be the highest payer. They do need to explain their pay philosophy, how decisions are made, and how employees can progress.

The 2026 Mercer QuickPulse® US Compensation Planning Survey includes data from 1,001 organizations in the US across 15 industries, with employee bases ranging from small to very large. This study was fielded in mid-July 2026. More information can be found here. 

Historical actuals were collected in March for each respective year. Average merit and total increase budgets include organizations reporting zero increases.