Salary budgets in 2026 are stabilizing as boards and senior leaders move beyond the short-term adjustments of recent years. Inflation remains volatile in many countries, reflecting varied conditions in markets around the world. Recently released data suggest leaders are returning to measured, disciplined salary increases, with fewer signs of reactive or inflation-driven spikes.
What’s happening with salary increases in 2026?
WTW’s mid-year 2026 Global Salary Budget Planning Report reveals actual salary increases for 2026 are generally tracking with predictions in large markets worldwide. For example, actual salary increases range from 2.9% in France to 4.3% in China and 4.8% in Mexico. They’re 3.5% in the U.S. and U.K and do not deviate considerably from there: 3.2% in Germany, 3.3% in Spain, 3.3% in Japan and 3.4% in Canada. In the U.S., the actual 2026 increase is generally consistent with the previously reported planned 2026 increase of 3.4%. This contrasts with 2025 where actual increases came in below planned increases (3.5% versus 3.9%).
According to the report, pay budgets remain largely steady, with nearly 60% of organizations reporting no change between anticipated and actual salary budgets. Cost management pressures (32%), a tighter labor market (28%) and inflationary concerns (27%) continue to drive employers’ cautious approach to salary planning. Salary increases remain relatively high by historic standards (the pre-pandemic norm was 3%) amid higher total labor expenses, which include salaries, bonuses, variable pay and benefits costs. Leaders continue to focus on employee wellbeing and the increasing costs of medical care, which WTW’s 2026 Global Medical Trends Survey expects to rise globally by 10.3% in 2026.
What about inflation in 2026?
Inflation continues to vary by country and shift. In the U.K., for example, it was 2.6% in June compared with 3.4% in December 2025 and 3.6% in June 2025 (after being as low as 1.7% in September 2024).
Inflation in the Eurozone was 2.8% in June, up from 1.9% in December 2025, 2.0% in June 2025 and 1.7% in September 2024. Canada was 2.8% in June, up from 2.4% in December 2025, 1.9% in June 2025, and 1.6% in September 2024. The U.S. was 3.5% in June, up from 2.7% in December 2025, 2.7% in June 2025, and 2.4% in September 2024. While many leaders continue to be relieved that inflation is lower than it was at its peak (for example, 11.1% in the U.K. in 2022), they are focused on the risk of it increasing again amid changing global economic and political conditions.
With higher 2026 inflation in many countries, salary increase budgets are outpacing inflation in some but not all markets. For example, 2026 salary increases in some Eurozone countries (e.g., France) are outpacing country-specific inflation levels, but not in others (e.g., Spain). U.K. and Canadian salary increases are exceeding their respective June inflation rates. U.S. salary increases match the June inflation rate.
Why do salary increases and inflation sometimes move differently?
As previously reported, inflation and salary increases generally move in the same direction, but different factors drive them. Inflation represents changes in the market cost of a basket of goods (such as groceries and fuel). Salary increases reflect changes in the supply and demand for labor, which can be caused by demographic trends, labor participation rates, technological advances and growth in productivity. When labor demand is high, inflation and salaries tend to rise faster. When it’s low, salaries and inflation generally increase more slowly.
For the 20 years before the pandemic, salary increases generally outpaced inflation in most developed economies. However, during the high-inflation years of 2021 and 2022, inflation was higher than salary increases. Then, in 2023 and 2024, salary increases again outpaced inflation. In 2025 and 2026, the relationship has varied by country.
What are leaders doing to remain competitive while managing costs?
To remain competitive while managing costs in changing economic environments, many leaders do the following when planning salary budgets:
- Look beyond the headline budget. Salary increase levels are stabilizing across markets, but the more important shift is how leaders are applying those budgets. Leaders making more deliberate decisions about where increases are directed are seeing the biggest impact. Leading organizations are moving away from uniform adjustments and toward a more strategic, targeted approach. Increasingly, they are directing pay to higher performers and employees with the skill sets needed to drive AI adoption, business growth and performance while supporting retention and critical business priorities.
- Treat global markets differently. For many leaders, global consistency is no longer the goal. Variations across Asia Pacific, Europe, the Americas and the Middle East highlight the need to adapt pay strategies to local talent dynamics and cost pressure. Leaders recognize that practices vary widely across geographies and act accordingly.
- Focus on total rewards, including benefits. Leading organizations consider pay, benefits, wellbeing and career development holistically and develop programs that help attract and retain talent while managing costs during times of economic and technological change. They know employees deeply value benefits such as healthcare and retirement. These costs continue to increase for both companies and employees, varying widely by country, though they are not captured in salary increase budgets.
- Enhance the employee value proposition through high-impact employee experience. Leading organizations strengthen the employee value proposition beyond pay and benefits by focusing on key priorities that help organizations bolster engagement and retention. These include clarifying career direction and expectations, instilling confidence in organizational and personal future performance and growth, as well as providing connection to purpose, leaders and colleagues.
- Focus on flexibility. WTW research also shows that effective leaders understand that employees value choice, and these leaders use flexibility to create differentiated programs to attract and retain employees. This includes offering employees alternative programs, such as different types of benefits and work arrangements. WTW’s Global Benefits Attitudes Survey shows that, in many cases, employees accept lower pay in return for work-location flexibility.
According to WTW’s Lori Wisper, “Organizations still have work to do educating employees about why salary increases don’t go up even when inflation does. It’s the sticky nature of salary increases that leaders need to remember because they also want to avoid layoffs caused by escalating pay levels. Raising pay to match the cost of living, rather than the cost of labor, is just bad for business in the long term.”
A version of this article originally appeared on Forbes on July 31, 2026.
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