Nov 4, 2025

Everyone wants a pay raise, but what can you realistically expect to get heading into 2026? The short answer is, “it depends.” However, if you’re looking for clues, a great place to start is exploring projected merit increase budgets for the year ahead. New research from Pave , a compensation intelligence platform that collects real-time pay and workforce data from thousands of companies, indicates employers are gearing up to dish out a median merit increase budget of 3.5% in the United States next year, which is on par with 2025. This preliminary view into 2026 compensation planning practices comes after Pave and Alpine Rewards, a compensation consulting firm, teamed up to survey 243 technology and life sciences companies in September 2025 on their go-forward compensation budgets. So, is it safe for you to assume you’ll get an automatic 3.5% bump in base salary next year? Not necessarily. What happens next will vary based on a number of factors. Key Findings Heading into 2026, surveyed companies say they plan to reserve a median of 3.5% of base payroll for merit increases in the U.S. next year. Companies also plan to set aside additional funds for pay increases tied to promotions, pay equity fixes, and other market-based adjustments. Pay increases vary widely based on employee performance ratings, indicating companies are becoming more focused on pay for performance. Overall vs. Merit Increase Budgets Let’s start with some good news. Companies typically budget for pay increases along two dimensions—they have an “overall” salary increase budget and a “merit” increase budget. Overall budgets include merit budgets, but also have extra funds set aside to pay for promotions, pay equity fixes, and other market-based adjustments (e.g., a sudden increase in the cost of labor in a particular city or country). In the Pave survey, companies indicated they plan to reserve a median of 5% of base payroll in the U.S. for their overall budgets in 2026. This means there is more to go around than you might initially think. However, it’s important to remember these extra funds are designed to cover specific situations that may not apply to most people. When managing your expectations, it is best to focus on merit increase budgets, which are intended to cover the general employee population. And again, the median projected merit increase budget for 2026 in the U.S. is 3.5% of base payroll. Your Performance Rating Matters Earlier this year, Pave published a report on the connection between performance ratings and annual salary increases. Specifically, the report examined merit cycle outcomes for 46,000 employees who received pay adjustments in the first quarter of 2025 in the U.S., who also had their performance rating data loaded into Pave’s compensation planning software. In the study, different performance rating scales were normalized across companies into a three-tiered scale. Employees with “meet expectations” performance ratings received a salary increase 88% of the time, and their median raise was 3.5%. In other words, if you meet expectations in your job, you can generally expect a pay bump in line with projected merit increase budgets. That said, 12% of people who received a “meets expectations” rating still got nothing, likely because their companies faced financial difficulties and had a salary freeze in place. The story is quite different for employees who received “below expectations” ratings. In this case, only 10% of people got a raise, and the median increase was 2.8%. On an overall basis, if you fall into this category, you shouldn’t expect much. At the top of the performance scale, employees with “exceeds expectations” performance ratings received a salary increase 89% of the time, and their median raise was 5%. As more companies continue to look for ways to retain top talent and optimize their compensation spend, you can expect more dollars to flow toward higher performers in the future. Getting Promoted Changes the Game In the same pay-for-performance report , Pave also explored outcomes for promoted employees. Everyone in this group received a salary increase, and their median raise was 9.7%. If you want your pay to truly outpace U.S. inflation —which stood at an annualized rate of 3% as of September 2025—setting yourself up for a promotion is the ticket. Of note, 99% of promoted employees received new equity grants (e.g., stock options or restricted stock units) in addition to their base salary increase, providing an extra long-term bump in pay. Pave What’s Happening Outside the US? In the Pave survey, companies were also asked to share their projected overall and merit increase budgets outside the U.S. Interestingly, the median projected merit increase budgets in Australia, Canada, Germany, Ireland, Poland, Switzerland, and the United Kingdom matched the U.S. exactly, coming in at 3.5%. Meanwhile the median projected merit increase budget in Mexico is slightly higher at 4%, and in India, the median is 8%. India is well known for setting budgets at least two times larger than the U.S., but on an overall basis, this data shows practices in most economies are converging. Pave Things Can Still Change While new data from Pave suggests employees can expect to see pay increases in 2026 that are similar to 2025, we are still months away from most merit cycles, which typically occur in March and April. This means a lot could still change before companies take action on pay adjustments. If macroeconomic conditions sour, you can expect actual merit increase budgets to shrink between now and next spring. However, at the moment, companies appear set for a business-as-usual approach.