Average Salary Increase 2026: What HR and Finance Leaders Need to Know

Where the 3.5 Percent Figure Comes From

Payscale 2026 Compensation Best Practices Report

Payscale's annual survey of over 3,000 HR and compensation professionals found that 3.5 percent was the median planned merit increase for 2026 among US organizations, down slightly from 3.8 percent in 2025. The report found that merit increases remained the most prevalent form of base salary adjustment at 87 percent of organizations surveyed.

Mercer 2025/2026 Compensation Planning Survey

Mercer's compensation planning survey of over 1,000 large US organizations found planned salary budgets for 2026 averaging 3.4 to 3.6 percent, consistent with Payscale's findings. Technology, financial services, and healthcare were the sectors budgeting above the overall average.

WorldatWork Salary Budget Survey

WorldatWork's annual salary budget survey reported similar findings, with the median planned base salary increase budget for 2026 at 3.5 percent. The survey also found that 73 percent of organizations planned promotional increases as a separate mechanism from merit increases, averaging an additional 8 to 12 percent upon promotion.

Average Salary Increases by Industry in 2026

Technology and software

3.8 to 4.5 percent is the average merit budget range for technology and software organizations in 2026. Engineering, data science, and machine learning roles are at the high end of this range, reflecting continued competition for specialized technical talent.

Financial services

3.5 to 4.0 percent is typical for financial services, with investment banking, private equity, and quantitative roles consistently at the upper end. Regulatory compliance and risk management roles have seen above-average budget increases in 2026 reflecting regulatory complexity.

Healthcare and life sciences

3.3 to 3.8 percent is the typical range, with clinical and specialized scientific roles at the higher end. Organizations in high-demand nursing and allied health markets are running targeted above-average increases for specific job families rather than across-the-board elevated budgets.

Professional services and consulting

3.0 to 3.5 percent is typical for professional services firms. Firms with strong client demand and high utilization rates are at the higher end of this range.

Nonprofit and government

2.5 to 3.0 percent is the typical budget range for nonprofit organizations and government entities, constrained by funding structures and board approval processes that limit flexibility to respond to market movement.

Why the Average Does Not Tell You What Budget to Set

The compa-ratio problem with flat percentages

If 40 percent of your workforce is paid below 85 percent of their band midpoint, applying a flat 3.5 percent merit budget will not move most of them into a competitive pay position. It will keep them below midpoint, widen the gap between their pay and the market, and create continued flight risk for your highest performers who have the most external options.

High performers below midpoint need more than average

A high performer paid at 79 percent of their band midpoint needs a significantly larger increase than 3.5 percent to reach a competitive pay position within a reasonable number of cycles. Applying the industry average to this employee is a retention decision disguised as a compensation decision.

What a merit matrix does that a flat increase cannot

A merit matrix connects performance rating to compa-ratio to produce differentiated increase recommendations. An employee with an Exceeds Expectations rating and a compa-ratio of 82 percent might receive a 6.0 to 7.5 percent increase. A peer with the same rating and a compa-ratio of 105 percent might receive 2.0 to 3.5 percent. The matrix distributes budget to where it does the most retention and equity work.

How to Use the 2026 Average When Presenting to Your Board or CFO

Leading with market context

The industry average provides external context for your budget request. Framing your proposed merit budget as in line with or above market average gives a CFO or board the external validation they typically require before approving payroll spend.

Framing the budget as retention spend, not cost

The most effective CFO presentations frame merit spend in terms of the cost of turnover it prevents. If a Senior Engineer costs $180,000 to replace in recruiting fees, onboarding time, and lost productivity, and your merit investment to retain them is $6,500, the ROI of the merit spend is explicit and does not require the CFO to take it on faith.

What to Expect for 2027: Early Indicators

Early compensation planning surveys for 2027 suggest merit budgets will continue to moderate toward the 3.0 to 3.5 percent range as labor market conditions normalize from the post-pandemic tightness. Organizations in artificial intelligence, data infrastructure, and cybersecurity are expected to maintain above-average budgets for specialized technical roles regardless of broader market moderation.

Plan Your 2026 Merit Budget With Live Market Data, Not Industry Averages The 3.5 percent average is a starting point, not a budget. CompBldr connects your organization's compa-ratio distribution and salary band positioning to a merit matrix that tells you exactly what budget you need to move your people toward market competitiveness without overspending. Book a 15-Minute Demo

Quick Takeaways: Average Salary Increase 2026

Core Headline Number: Major compensation data benchmarks (Payscale, Mercer, and WorldatWork) confirm that US organizations have set a median planned base salary merit budget of 3.5% for 2026.
Industry Performance Variances: Aggregate data obscures critical sector-specific talent demands. Technology leads baseline budgeting trends at 3.8% to 4.5%, followed closely by Financial Services at 3.5% to 4.0%, while Nonprofits track conservatively at 2.5% to 3.0%.
The Compa-Ratio Trap: Applying a flat 3.5% budget across the board fails to correct market discrepancies. It leaves high performers positioned below their salary band midpoints in uncompetitive pay states, compounding critical flight and retention risks.
Differentiated Budget Distribution: Modern total compensation frameworks leverage a merit matrix rather than flat structural bumps. This methodology cross-references individual performance ratings directly with an employee's compa-ratio to intelligently target payroll allocations where they optimize retention.
CFO & Board Room Strategy: Secure operational budget approvals by leading with macro market context and framing the merit budget as an explicitly high-ROI employee retention investment, rather than a raw organizational cost center.

Where the 3.5 Percent Figure Comes From

Payscale 2026 Compensation Best Practices Report

Mercer 2025/2026 Compensation Planning Survey

WorldatWork Salary Budget Survey

Average Salary Increases by Industry in 2026

Technology and software

Financial services

Healthcare and life sciences

Professional services and consulting

3.0 to 3.5 percent is typical for professional services firms. Firms with strong client demand and high utilization rates are at the higher end of this range.

Nonprofit and government

Why the Average Does Not Tell You What Budget to Set

The compa-ratio problem with flat percentages

High performers below midpoint need more than average

What a merit matrix does that a flat increase cannot

How to Use the 2026 Average When Presenting to Your Board or CFO

Leading with market context

Framing the budget as retention spend, not cost

What to Expect for 2027: Early Indicators

Frequently Asked Questions

What is the average merit increase for 2026?

US organizations are budgeting an average of 3.5 percent for base salary merit increases in 2026 according to Payscale's 2026 Compensation Best Practices Report and WorldatWork's Salary Budget Survey. This represents a slight moderation from the elevated merit budgets of 2022 and 2023, which reached as high as 4.0 to 4.5 percent as organizations competed for talent in a tight labor market.

Is 3.5% a good salary increase in 2026?

Whether 3.5 percent is adequate depends on where your employees sit in their salary bands. For an employee paid at 95 percent of band midpoint with strong performance, 3.5 percent may be exactly right. For an employee paid at 78 percent of band midpoint with the same performance rating, 3.5 percent does not close the market gap and puts that person at continued flight risk. Using a merit matrix that combines performance rating with compa-ratio produces more defensible outcomes than applying the same percentage to everyone.

How does the average salary increase vary by industry in 2026?

Technology and software organizations are budgeting 3.8 to 4.5 percent on average, reflecting continued competition for engineering and data talent. Financial services is averaging 3.5 to 4.0 percent. Healthcare and life sciences is at 3.3 to 3.8 percent. Professional services and consulting is at 3.0 to 3.5 percent. Nonprofit and government organizations are typically at 2.5 to 3.0 percent, constrained by budget and funding structures.

What is the difference between a merit increase and a cost of living adjustment?

A merit increase is differentiated based on individual performance and pay position, meaning different employees receive different percentage increases based on how they performed and where they sit in their salary band. A cost of living adjustment (COLA) is a flat percentage applied equally to all eligible employees to maintain purchasing power against inflation, regardless of performance. Merit increases recognize individual contribution. COLAs maintain baseline purchasing power. Most organizations in 2026 are running merit-only cycles and have not implemented separate COLA adjustments.

How should compa-ratio influence the merit increase I give?

A merit matrix connects two inputs: the employee's performance rating and their compa-ratio (where they sit relative to the midpoint of their salary band). An employee with a compa-ratio of 82 percent and an Exceeds Expectations rating should receive a significantly larger merit increase than a peer with a compa-ratio of 108 percent and the same performance rating, because the first employee's pay is not competitive even though their performance is strong. Using compa-ratio in a merit matrix prevents the common mistake of giving the largest increases to the highest-paid employees.

What happens if we give everyone the same flat merit increase?

A flat merit increase applied uniformly produces two problems over time. First, it widens the gap between employees paid below midpoint and those paid above it, because the same percentage translates to a larger absolute dollar amount for higher-paid employees. Second, it does not differentiate for performance, which means high performers receive the same increase as average performers and eventually leave for organizations that pay for contribution. A merit matrix that connects performance and pay position produces more defensible outcomes and better retention results.