What's Happening?
The Conference Board has released a report indicating that salary raise budgets for 2026 are expected to remain consistent with those of 2025. Companies plan to increase their salary budgets by an average of 3.4% next year, mirroring the actual increases seen in 2025. This figure is slightly lower than the 4% increase predicted in the previous year's survey but remains above the pre-2020 average of 3%. According to Mitchell Barnes, an economist at The Conference Board, the current labor market is characterized by recalibration rather than retreat, with companies focusing on rebalancing their workforce and labor strategies. This includes slowing headcount growth and investing in employee training.
Why It's Important?
The steady salary increases reflect a strategic shift in how companies allocate their compensation budgets. With economic uncertainty influencing hiring and salary growth, businesses are prioritizing investments in critical skills and positions. This approach allows companies to focus on roles that significantly impact their operations, such as those requiring specialized capabilities and internal upskilling. The trend towards performance and incentive pay, as opposed to one-time discretionary bonuses, suggests a move towards more sustainable compensation strategies. This shift could benefit employees in critical roles while potentially limiting salary growth for others.
What's Next?
As companies continue to refine their compensation strategies, the focus on performance-based pay and critical skill development is likely to persist. The Conference Board's report indicates that businesses are increasingly diversifying their compensation approaches, with a growing number planning to use 'other' budgeted base-pay increases. However, the use of promotions, external market adjustments, and internal pay equity adjustments is expected to decline. This trend may lead to a more competitive environment for employees seeking advancement through traditional means, prompting them to focus on skill development and performance to secure salary increases.
