Salary budgets are flat. Here's how employers can win talent in 2027

• Key Insight: Discover how employers are shifting compensation strategies as salary budgets remain flat.
• What's at Stake: Employers competing for talent as salary budgets remain flat.
• Supporting Data: 15% of organizations planning future changes to one specific program.
• Forward Look: Salary budgets projected to remain at 3.4% in 2027.
  Source: Bullets generated by AI with editorial review

With salary budget increases expected to remain flat in 2027, U.S. companies are looking beyond hiring to strengthen their employee value proposition. 

That's according to a new midyear report from employee benefits consulting firm WTW, which forecasts salary budgets will remain at 3.4% in 2027, just below the 3.5% average increase employers reported for 2026. 

"Salary increase budgets reflect the current balance between the supply and demand of labor," said Lori Wisper, senior managing director, work and rewards, WTW. "While the focus is often on the low demand for labor, most leaders forget that we are still in the throes of low supply. 

"Employers will continue to experience salary increases in the 'land of 3%' for the foreseeable future given these dynamics," she continued. "Those who focus on using that money wisely will be the ones that win the inevitable war for talent once demand picks up."

The report found employers largely stuck to their original salary plans in 2025, with nearly 60% reporting no difference between anticipated and actual salary budgets. Factors driving employers' cautious approach to salary planning included cost management pressures (32%), a tight labor market (28%), and inflationary concerns (27%).

Read more: How AI is reshaping compensation work

"Salary budgets may be holding steady, but the way organizations are using those dollars is changing significantly," said Brittany Innes, senior director of rewards data intelligence at WTW. "Employers are moving away from broad-based increases and toward more precise, performance-driven pay strategies that target the roles, skills and talent segments that matter most." 

WTW's Salary Budget Planning Report is based on a survey conducted from March through May that collected responses from more than 34,000 companies across 156 countries, including 1,650 U.S. organizations. 

The science of compensation decisions

This shift toward more targeted compensation strategies is already changing how employers approach pay programs. One-third of organizations are making adjustments to their compensation programs, while another 15% plan to make changes in the future. Among the most common moves are hiring at higher salary ranges (36%), increasing the use of retention bonuses or spot awards to secure key talent (34%), and raising starting salary ranges (32%). 

Compensation decisions are often misunderstood because they are evaluated differently than employee benefits, Wisper said. While benefits programs often account for employees' individual circumstances and needs, compensation structures are based on the market value of a role and the supply and demand of labor. Employers first establish pay ranges for jobs and then apply those structures to employees. 

"We think more about the job first," Wisper said. "We set up pay structures based on jobs, then we apply the people to that." 

Read more: Why financial wellness should start with employees' paychecks

Economic uncertainty and financial pressures are also shaping workforce strategies, with many employers focusing on retention rather than aggressive hiring. Most employees (69%) remained with their current employers, while only 22% of companies reported adding head count. To strengthen their employee value proposition, employers are turning to other strategies, including improving the employee experience (47%), expanding training opportunities (40%), and enhancing health and wellness benefits (38%). 

Wisper said company leaders in today's labor market often ask why salary budgets are not declining more sharply, but those questions frequently focus only on labor demand while overlooking continued constraints on the supply of talent.

"They forget the supply side, so that's one thing," she said. "The other thing is the whole story around inflation. There's still a misconception out there that employers should give salary increases that match inflation, which they shouldn't."