When it comes to salary budget increases in 2027, a new survey found that employers will continue the trend of shifting toward more targeted, performance-driven pay strategies.

According to WTW’s latest Salary Budget Planning Report, average salary increase budgets for U.S. companies in 2027 are expected to remain stable at 3.4%, slightly lower than 2026’s actual increase of 3.5%. Among other findings, three primary ones include: cost management pressures (32%), a tighter labor market (28%) and inflationary concerns (27%). All three continue to drive employers’ cautious approach to salary planning, according to WTW.

WTW conducted the survey from March to May 2026, with 1,650 U.S.-based organizations responding. In total, 34,024 responses were received from employers across 156 countries worldwide.

“Salary budgets may be holding steady, but the way organizations are using those dollars is changing significantly,” says Brittany Innes, senior director, Rewards Data Intelligence, WTW. Innes adds that employers are moving away from broad-based increases and toward “more precise,” performance-driven pay strategies that target the roles, skills and talent segments that matter most.

“When salary budgets are stable, every pay decision becomes more important,” she explains. She adds that employers are asking tougher questions about where compensation investments will have the greatest impact and are becoming more intentional about directing dollars toward critical talent, in-demand skills and priority business needs.

“The HR leaders who get this right are the ones who understand where talent can drive the most value and align their pay investments accordingly,” Innes says. “That requires HR leaders to work closely with business leaders and make compensation decisions through the lens of long-term business priorities, not just short-term staffing needs.”

A shifting approach to compensation strategy

This shift is already reshaping how employers manage compensation programs, according to WTW’s survey. More than one-third (33%) are adjusting their programs, with another 15% planning future changes. Other changes include: hiring at higher salary ranges (36%), increasing the use of retention bonuses or spot awards to help secure key employees (34%) and raising starting salary ranges (32%).

At the same time, economic uncertainty and financial pressures are contributing to steady retention levels, with most employees (69%) remaining with their current employers and only 22% of companies adding headcount. Rather than relying on hiring alone, the survey found that employers are focusing on other ways to strengthen the employee value proposition, including improving the employee experience (47%), expanding training opportunities (40%) and enhancing health and wellness benefits (38%).

Lori Wisper, senior managing director, Work & Rewards, WTW, explains that salary increase budgets reflect the current balance between supply and demand of labor, adding that while the focus is often on the low demand for labor, most leaders forget that the country is still in the throes of low supply.

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