This article is part of a recurring series highlighting recent talent mobility industry reports. If you would like the WERC editorial team to consider covering a specific industry report, email mobility@talenteverywhere.org.
As a new year unfolds, employees and employers are focused on what’s new and changing in compensation planning. Pave, in partnership with Alpine Rewards, surveyed 243 companies, mostly in the technology and life sciences sectors, to uncover trends in planned merit increases, overall salary budgets, and the factors that influence pay adjustments.
A report based on the survey results distinguishes between merit increases, which are intended for the general workforce, and overall salary increases, which include promotions, pay-equity adjustments, and market-based pay corrections. Understanding these distinctions helps employees set realistic expectations and allows companies to allocate compensation resources strategically.
The findings suggest that overall, companies are aiming for stability in compensation budgets, with modest merit increases and a growing emphasis on linking pay to performance and promotions. These trends reflect broader labor market dynamics, including talent retention pressures and inflationary considerations.
Merit Increase Budgets: Modest and Consistent
The survey found that U.S. companies plan to allocate a median of 3.5% of base payroll for merit increases. This is identical to the projected figure for 2025, indicating a period of relative stability in baseline pay growth. Merit increase budgets are typically intended to cover general employee pay raises, excluding special cases like promotions or market adjustments.
While 3.5% may slightly exceed inflation in some regions, it largely represents a moderate raise aimed at maintaining existing wage levels rather than dramatically increasing compensation. For employees whose performance is average, this will likely be the primary source of salary growth in 2026. The report underscores that while headline percentages are informative, the actual raise an individual receives will depend heavily on performance, role, and other company-specific factors.
Overall Salary Budgets: More Flexibility Beyond Merit
In addition to merit increase funds, companies are setting aside extra resources in their overall salary budgets to cover promotions, pay-equity corrections, and market-driven adjustments. In the Pave survey, the median planned budget increase was 5% for fiscal 2026, compared to 4.5% the year prior, meaning that while the merit budget accounts for 3.5%, an additional 1.5% is earmarked for targeted adjustments. This extra allocation allows companies to address individual circumstances such as market competition for talent, cost-of-living adjustments, or correcting internal pay inequities. However, because these funds are often concentrated among a subset of employees, most workers’ increases will still revolve around the standard merit pool.
Global Perspective: Compensation Trends Outside the U.S.
The Pave survey also looked at planned pay increases in markets outside the United States. The median merit increase budgets in Australia, Canada, Germany, Ireland, Poland, Switzerland, and the United Kingdom were all approximate to the U.S. figure of 3.5%, indicating a convergence in compensation practices across developed economies. Some markets, however, projected higher increases due to local economic conditions. In Mexico, the median was 4%, while in India, it was 6.9%, consistent with that country’s historical practice of allocating larger salary budgets. This illustrates how geographic and economic factors continue to influence compensation strategies, but overall, most markets are trending toward moderate and stable merit increases.
Merit Cycles and Promotion Rates
Most companies run one annual merit cycle. Only about 10% say they run two. Most run two promotion cycles per year, while 10% say they promote on an ongoing basis. About half say they do off-cycle promotions. More than half of respondents promoted 15% or less of their employees over the preceding year. Just 3.2% promote a quarter of their employee population or more. As promotions come with pay increase, more companies may exercise caution given economic uncertainty.
Pay Transparency
As of September 2025, 14 U.S. states have pay transparency laws in place, but many companies aren't waiting for wider adoption. Among survey participants, nearly two-thirds said they have started sharing salary ranges in job postings, and about one in five say they are considering implementing the practice soon. Global trends are shaping perceptions in this regard, with the EU Pay Transparency Directive set to go into effect in June 2026. There is also more of a focus on pay transparency in the Asia-Pacific region, including laws in Japan and Australia aimed at reducing the gender pay gap.
The Great Stay Reshapes the Labor Market
A cooling labor market and high-profile layoffs have created a new employee mindset: staying put. Results from Pave’s survey show employees are embracing “The Great Stay,” choosing job security over new opportunities. The phenomenon of “job hugging” means lower turnover and longer tenure as workers calculate that staying in place is safer than taking a chance in the current climate.
An analysis of Pave's dataset shows that job hugging is most pronounced at public companies, whereas turnover has only slightly decelerated at their private counterparts. The annualized turnover rate at public companies was 15.9% this year, compared to 21.4% in 2023.
Job hugging has not been evenly distributed across sectors or job types. Turnover is lowest in fintech, gaming, and media, and most reduced among engineering, IT, and legal roles—fields where AI adoption is reshaping labor demand. Leadership roles are seeing the steepest decline in departures as executives and managers take a cautious view of changing roles.
A Year of Steady, Strategic Pay
The 2026 compensation outlook is characterized by stability and targeted differentiation. Merit increase budgets are projected at 3.5% in the U.S. and most developed economies, while overall salary budgets provide additional flexibility for promotions, pay-equity corrections, and market adjustments. Performance ratings, promotions, and equity grants are becoming central to meaningful pay growth, highlighting a shift toward pay-for-performance strategies. Global trends also show moderate consistency, with only select emerging markets projecting higher budgets.
Employees should manage expectations based on performance and career progression, while employers should leverage strategic compensation planning to balance talent retention, equity, and cost control. Overall, 2026 appears set to be a year of steady, thoughtful, and performance-oriented compensation planning.