Budget Growth Stabilizes Around 3.4%

U.S. salary increase budgets are entering a period of deliberate stabilization. Following several years of elevated pay adjustments driven by intense hiring competition, employers are signaling a shift toward more predictable, performance-anchored pay planning. According to recent benchmark data, organizations are forecasting average total pay increases between 3.3% and 3.4% for 2027, depending on job classification. Anchored by a “low hire, low fire” economic environment, compensation strategies are moving away from broad-based cost-of-living adjustments toward targeted, merit-driven investments.

Below is a detailed breakdown of the projected salary increase budgets, regional variances, and key allocation strategies heading into the 2027 fiscal year.

Key Findings: Salary Increase Trends

1. 2027 Salary Projections vs. 2026 Actuals

Across all employee categories, projected 2027 total pay increases show minimal variance across roles, remaining tightly grouped between 3.3% and 3.4%:

Job Classification	2026 Projection	2026 Actual Payout	2027 Projection
Non-Exempt (Hourly)	3.3%	3.8%	3.4%
Managers	3.3%	3.9%	3.4%
Executives	3.2%	3.7%	3.3%
Other Exempt	3.2%	3.8%	3.3%

2. Market Benchmarking

Gallagher’s numbers align closely with other major market salary budget surveys for 2026 actuals and 2027 projections:

• WorldatWork:6% mean (2026 Actual) | 3.6% mean (2027 Projection)
• WTW:5% average (2026 Actual) | 3.4% average (2027 Projection)
• Gallagher:7%–3.9% average (2026 Actual) | 3.3%–3.4% average (2027 Projection)

Strategic & Economic Context: The “Low Hire, Low Fire” Market

Gallagher describes the current climate as stabilized, measured, and predictable.

• Labor Market Dynamics: Sustained employment levels paired with cautious workforce movement have created a “low hire, low fire” environment—slower hiring activity without a surge in layoffs.
• Talent Strategy: With reduced turnover and lower hiring urgency, companies face less pressure to offer outsized pay bumps to attract new talent. However, pay must stay competitive enough to retain existing staff.
• Pay Allocation Shift:
  • Merit pay remains the primary driver of base pay growth (~2.5% to 2.6% across categories).
  • General/COLA increases continue to shrink as a portion of total movement (~1.7% to 1.8%).
  • Discretionary increases remain minimal (~0.5% to 0.6%), marking a clear pivot away from broad-based adjustments toward targeted performance investments.

Breakdown by Employee Classification

Non-Exempt (Hourly) Workers

• Overall Projected Increase:4% (2.6% Merit | 1.8% General/COLA | 0.6% Other)
• Ownership Split:3% (For-profit) vs. 3.5% (Non-profit)
• Regional Highlights: Highest in the West (3.6%) and Northeast (3.5%); lowest in South Central and Southeast (3.3%).
• Organization Size: Highest at employers with under 100 or 500–999 FTEs (3.5%); lowest at large organizations with 1,000+ FTEs (3.3%).

Managers

• Overall Projected Increase:4% (2.6% Merit | 1.8% General/COLA | 0.6% Other)
• Ownership Split:2% (For-profit) vs. 3.5% (Non-profit)
• Regional Highlights: Highest in the Northeast (3.6%), followed by the Southeast and West (3.5%).
• Organization Size: Highest at smaller firms under 100 FTEs (3.5%); lowest at large organizations with 1,000+ FTEs (3.3%).

Executives

• Overall Projected Increase:3% (2.5% Merit | 1.7% General/COLA | 0.5% Other)
• Ownership Split:0% (For-profit) vs. 3.5% (Non-profit)
• Regional Highlights: Highest in the Southeast (3.5%); lowest in the South Central region (3.1%).
• Organization Size: Mid-sized firms (500–999 FTEs) lead at 3.5%, while firms with 100–499 FTEs sit at 3.1%.

Other Exempt Workers

• Overall Projected Increase:3% (2.5% Merit | 1.8% General/COLA | 0.6% Other)
• Ownership Split:3% (For-profit) vs. 3.4% (Non-profit)
• Regional Highlights: Highest in the Northeast (3.8%); lowest in the North Central region (3.2%).
• Organization Size: Highest at mid-size firms with 500–999 FTEs (3.5%); lowest at 1,000+ FTEs (3.2%).

Special Compensation Practices

Promotional Increases

• Employers are budgeting an average 4% increase for promotions in 2027 (up from 3.2% actual in 2026).
• For-profit entities are budgeting significantly higher promotional pools (3.7%) than non-profits (3.1%).
• Mid-size employers (100–499 FTEs) plan the highest promotion budgets (3.8%), whereas large employers (1,000+ FTEs) plan the lowest (3.0%).

Lump Sum Payments (In Lieu of Base Increases)

• Overall Usage: 65% of organizations do not plan to use lump sum awards instead of base increases.
• Specific Applications: Among the 35% that do use lump sums, 31% reserve them strictly for employees at their salary range maximum, while 4% consider them for all employees.
• Company Size Trend: Large organizations (1,000+ FTEs) are far more likely to leverage lump sum awards:
  • 60% of large organizations plan to use lump sums (compared to only 17% of firms with under 100 FTEs).
  • 56% of large organizations use them specifically for employees capped at their range maximum.

Respondent Profile

The Gallagher study surveyed nearly 1,200 U.S. employers:

• Ownership: 54% Non-profit | 46% For-profit
• Geography: Heavily weighted toward the North Central region (46%), followed by West (15%), South Central (14%), Northeast (13%), and Southeast (12%).
• Headcount: 68% of respondents have under 500 FTEs; 22% have 1,000+ FTEs.
• Revenue: Ranges from under $1M (5%) to over $10B (5%), with the largest slice falling between $5M and $100M operating income (42%).

Data Source: Gallagher 2026/2027 Salary Planning Report, based on a survey of nearly 1,200 U.S. employers. Reporting adapted from an article published by WorldatWork Workspan Weekly, Gallagher: Employers Taking ‘Measured’ Approach to 2027 Pay Budgets, July 30, 2026.