Temperatures are dropping, Halloween decorations are already out, and you know what that means: It’s time for most organizations to finalize salary increase budgets for the new fiscal year.  

Within the wide range of considerations, priorities fluctuate inside and outside any specific organization. Because decisions around salary impact workplace culture, recruiting, and retention, balancing those needs with industry standards and your own financial stability can be a challenge in the best of times.  

If you’re in this process now, I offer a few considerations that might help.  

Last year saw employers coming in slightly lower than they’d expected (3.5 percent overall increase versus a predicted 3.6 percent, with health care and retail coming in on the low side, and insurance and service sectors landing at 3.7 and 3.8 percent, respectively). 

This year? We don’t expect much to change. Compensation surveys and press releases consistently report a projected median of a 3.5 percent overall increase for 2027—a tight margin for the 3.4 percent inflation reported in August.  

As we look at the new year, geography takes a back seat as a meaningful differentiator in the increase amounts—part of a larger trend wherein remote work has blurred traditional location-based pay, and an effect of employers preferring performance-based raises.  

As always, budget differences across industry type impact increases. For 2027, we can expect to see shifts like these: 

So many of these factors are outside your control. The best you can do to address them is to be thorough in your research and careful with your budget parameters. But you do have options for making certain elements of salary decisions easier. 

Salary is understandably a sensitive area, and with so much at stake for employer and employee, transparency and clearly outlined policies go a long way toward establishing trust.  

This is a good time to look at your compensation plan, update or clarify salary bands, and add any missing detail to your merit increase determinations. The more you can offer each employee in terms of where the organization stands and the factors that guided your salary determinations, the greater sense of security and appreciation you create through otherwise challenging conversations.  

For your own planning, make sure the overall budget covers merit or cost of living (depending on your organization’s approach), and market or internal equity adjustments. Wherever possible, we also encourage organizations to plan for additional costs that may not be fully funded by a modest overall salary increase budget, including: 

Organizations are signaling a conservative approach to compensation planning for 2027, even as employees continue to face inflationary pressures and reduced purchasing power. This caution is understandable, given the complex workforce planning decisions organizations must make amid evolving internal and external challenges. 

While managing operational costs presents a struggle for so many employers, careful strategy and a thoughtful approach to communicating how and why pay decisions were made can go a long way toward generating a positive return on your investment in people.