Employers Plan to Continue With Moderate Pay Increases in 2027, per Marsh

Employees can expect to receive moderate pay increases headed into 2027 according to Marsh’s July 2026 Mercer QuickPulse U.S. Compensation Planning Survey, released today. 

The survey of 1,001 U.S. employers found the respondents plan to set base merit pay increases at 3.2% and total salary increases at 3.5% in 2027—including merit, promotions, cost-of-living and other adjustments—roughly in line with the actual increases employers reported in 2024, 2025 and 2026.

Budgets varied considerably by industry. Companies in high tech (3.8%), banking (3.7%), insurance/reinsurance (3.6%) and non-financial services (3.6%) sectors set the largest merit-increase budgets, while consumer goods (2.9%), healthcare (3%) and retail (3%) lagged most.

Inflation, which was 3.4% for the 12-months ending July 2026, is forecast to cool in 2027, according to a report from the Federal Reserve, but rising healthcare costs are among the financial pressures employees face headed into next year. Aon this month reported that employees are expected to cover an average cost of $5,297 for healthcare coverage, up from $4,909 in 2025—a 7.9% increase year over year.

“Economic uncertainty is top of mind for employers this year, and compensation dollars are tight,” said Tauseef Rahman, Marsh’s U.S. workforce reward solutions leader, in a statement. “To make the most of their budgets, employers should take a targeted approach, scrutinizing each compensation dollar and using data to direct increases where workforce needs and talent risk are the greatest.”

Employers surveyed said the economy will continue to influence their compensation decisions in 2027, with more than half (57%) expecting at least a moderate impact. Meanwhile, many employers have yet to finalize budgets for the coming year. As of July, when the survey was fielded, 87% of organizations said their 2027 salary budgets were still preliminary with data collection underway. Only 8% had proposed budgets to their organizations’ leadership and only 5% had secured approval.

While economic uncertainty looms, promotions and off-cycle pay will continue to “play an important role in total rewards and career progression,” according to Marsh’s report on the survey. Employers said they expect to promote about 8.4% of their workforce in 2027, down slightly from 8.6% in 2026 and 9.9% in 2025. Nearly two-thirds (64%) of employers said they gave, or will provide in 2027, off-cycle pay increases.

The survey also found that artificial intelligence and automation are becoming more common in compensation planning, although still nascent. Some 70% of organizations surveyed reported using at least some automation in determining compensation, while only 1% said they have “reached advanced levels of transformation.” AI was reportedly used most for salary increase recommendations (50%), job matching and leveling (49%) and market pricing recommendations and benchmarking (43%).

“AI is widely used for basic tasks such as market pricing a job or determining a new job’s level within the organization, but it’s not yet having a substantial impact on the compensation function,” Rahman said in a statement. “The barrier isn’t interest; it’s governance, data quality and system integration. Once employers address these and other factors, AI can transform the compensation function, freeing up capacity for greater human thought and impact.”