Most US employers not budging on budgets, salary increases remain flat

Rhea-AI Summary

WTW (NASDAQ: WTW) reports that US salary increase budgets for 2026 are expected to remain flat at 3.5%, matching 2025 levels. The study reveals that 53% of organizations maintained their anticipated pay budgets in 2025, while 31% project lower increases due to recession concerns and cost management.

Employee retention has improved, with only 30% of organizations reporting difficulty in attracting or retaining talent, down 11 percentage points since 2023. Companies are responding through various initiatives, including enhanced employee experience (47%), improved health benefits (43%), and increased training (40%). The average annual payroll expense increased by 3.6%, with 70% of organizations reporting higher total payroll costs than last year.

Positive

• Employee retention has improved with 11 percentage point decrease in organizations reporting talent difficulties
• Organizations are investing in employee experience (47%) and health benefits (43%)
• 70% of organizations maintain ability to increase payroll expenses despite economic uncertainty

Negative

• Salary increase budgets remain flat at 3.5% for 2026
• 31% of organizations project lower salary budgets due to recession concerns
• Average annual payroll expenses increased by 3.6%, pressuring company costs

News Market Reaction – WTW

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NEW YORK, July 08, 2025 (GLOBE NEWSWIRE) -- Average salary increase budgets for US companies in 2026 are expected to remain stable at 3.5%, matching 2025’s actual increases. This is according to the latest Salary Budget Planning Report by WTW (NASDAQ: WTW), a leading global advisory, broking and solutions company.

Three out of five organizations saw their salary budgets change in the last pay cycle. More than half (53%) of these organizations reported no change between their anticipated and actual pay budgets in 2025. For the nearly one-third (31%) of these organizations that are projecting lower salary increase budgets than last year, the most common reasons cited are an anticipated recession or weaker financial results (51%) and concerns related to cost management (45%). Tight labor markets (59%) and inflationary pressures (30%) are the most commonly cited reasons for change among the relatively few organizations that are projecting higher salary increase budgets.

“While top-line budgets are generally holding steady, the real shift is happening beneath the surface. Organizations are being more deliberate about how they allocate pay, where they focus investment and what outcomes they expect to drive. Employers are no longer simply reacting to economic signals; they’re reimagining how to best support broader business goals despite uncertainty,” said Brittany Innes, director, Rewards Data Intelligence.

Despite stable pay increases, employees are staying put. Fewer organizations this year have found employee stability challenging compared to the past two years. Less than one-third of organizations (30%) report difficulty attracting or retaining employees, representing a decrease of 11 percentage points since 2023.

In response to market conditions in which turnover is relatively low and burnout and disengagement remains a concern, organizations have taken a number of actions to support their workforce, including improving the employee experience (47%), enhancing health and wellness benefits (43%) and increasing training opportunities (40%).

Additionally, employers are adjusting compensation programs to address the competitive labor market and inflationary pressures. These actions have included conducting a compensation review of all employees (50%), performing a compensation review of specific employee groups (48%), hiring people higher in relevant salary ranges (45%) and raising starting salary ranges (40%). Over two-fifths of organizations (43%) have enhanced their use of retention bonuses or spot awards and 37% have targeted base salary increases for specific employee groups.

As organizations focus on these efforts, they continue to wrestle with higher annual payroll expenses. The average annual payroll expense increased by nearly 4% (3.6%), and 7 in 10 organizations report total annual payroll expenses higher than last year.

“As employers navigate continued economic uncertainty, ongoing increases in labor costs and the changing needs and expectations of employees, they are positioning themselves for what is to come and making investments in their workforces that go beyond pay raises. These include career development, wellbeing, flexibility and equity—because these are critical for performance, retention and resilience in a shifting market,” said Lori Wisper, managing director, Work & Rewards.

About the survey

The Salary Budget Planning Report is compiled by WTW’s Rewards Data Intelligence practice. The survey was conducted from April to June of 2025. Approximately 29,128 responses were received from companies across 157 countries worldwide. In the U.S., 1,569 organizations responded.

About WTW

At WTW (NASDAQ: WTW), we provide data-driven, insight-led solutions in the areas of people, risk and capital. Leveraging the global view and local expertise of our colleagues serving 140 countries and markets, we help organizations sharpen their strategy, enhance organizational resilience, motivate their workforce and maximize performance.

Working shoulder to shoulder with our clients, we uncover opportunities for sustainable success—and provide perspective that moves you. Learn more at wtwco.com.

Media contacts:

Ileana Feoli
ileana.feoli@wtwco.com

Stacy Bronstein
sbronstein@meritcomms.com

FAQ

What is the expected salary increase budget for US companies in 2026 according to WTW?

According to WTW's Salary Budget Planning Report, US companies expect salary increase budgets to remain stable at 3.5% in 2026, matching 2025's actual increases.

How many companies are projecting lower salary budgets for WTW's 2026 forecast?

31% of organizations are projecting lower salary increase budgets, primarily due to anticipated recession concerns and weaker financial results (51%) and cost management (45%).

What percentage of organizations are having difficulty with employee retention in 2025?

30% of organizations report difficulty attracting or retaining employees, representing an improvement of 11 percentage points since 2023.

How are companies responding to current market conditions according to WTW's report?

Companies are improving employee experience (47%), enhancing health benefits (43%), increasing training (40%), conducting compensation reviews (50%), and adjusting starting salary ranges (40%).

What is the average increase in annual payroll expenses reported in WTW's study?

The average annual payroll expense increased by 3.6%, with 70% of organizations reporting higher total payroll expenses compared to the previous year.