Every year the salary survey headlines read the same way: pay increases are shrinking, and HR is asked to explain why. WTW’s newest projection, that US salary budgets will land around 3.4% in 2027, will trigger the same round of hand wringing it always does. I think that reaction is wrong, and worse, it is now actively counterproductive.
The case against me
The obvious counter argument deserves stating plainly before I make mine: workers do not experience a compensation strategy, they experience a number on a payslip, and a raise that trails inflation and a tighter labor market can look and feel like a pay cut regardless of what else an employer is doing. Treat 3% as fine for too long, and a company will lose the people whose alternative offer clears that bar without trying.
That risk is real. It is also not what WTW’s own data shows is actually happening, which is the point.
What the survey actually says
WTW surveyed 34,024 companies across 156 countries, 1,650 of them in the US, between March and May, and found 2027 salary increase budgets holding at 3.4%, essentially flat against 2026’s actual 3.5%. Nearly 60% of organizations reported no variance between what they budgeted and what they spent. “Employers will continue to experience salary increases in the ‘land of 3%’ for the foreseeable future,” said Lori Wisper, senior managing director for work and rewards at WTW. That is not a company failing to fund raises. That is a company that has decided 3% is the number and is now spending everywhere else.
And they are spending. Thirty six percent of employers in the survey are hiring at higher salary ranges even as base budgets stay flat, 34% are expanding retention bonuses and spot awards, and 32% are raising starting salary ranges specifically. Beyond cash, 47% are investing in employee experience, 40% in training, and 38% in health and wellness benefits. None of that shows up in a base salary budget headline, and all of it is a direct response to the same retention pressure the counter argument above describes.
What it means for the HR leader
The mistake is treating “3%” as the whole compensation story instead of one line in it. WTW’s own numbers back that up from the other direction: 69% of employees are staying with their current employer, and only 22% of companies are adding headcount, which means most of the market is not actively bidding for the same people a flat merit budget would supposedly lose. If turnover were the emergency the “raises are shrinking” framing implies, retention would not look this stable.
That does not mean flat budgets are risk free, it means the risk sits somewhere other than the base number. A company that holds pay flat and does nothing else, no targeted increases for flight risk roles, no spot bonuses, no visible investment in experience or growth, will lose exactly the people the counter argument warns about. A company that holds the base number flat and redirects the rest of the budget the way WTW’s survey shows employers actually doing is making a defensible trade, not a mistake.
Where this actually goes wrong
The failure mode I have watched play out inside comp committees is not the flat budget itself, it is the sequencing. A leadership team sets the 3% number in the fall, then spends the winter bracing for an exit wave that the survey data says is unlikely to arrive, and only gets around to deciding where the retention bonuses and the targeted increases go after the anxiety has already leaked into the org. By the time managers are told what discretionary money they actually have, the narrative among employees is already “we got nothing,” because nothing visible landed at the same time as the base number did. The fix is not a bigger budget. It is releasing the base number and the targeted allocation in the same conversation, so nobody has to sit with a flat headline for three months wondering whether anything else is coming.
What to do instead of apologizing
Stop opening the annual comp conversation by explaining why the budget is only 3%. Open it by showing where the rest of the money went: the targeted increases, the retention spend, the benefits and training investment that a flat top line number hides. Pair the base number with the flight risk allocation before either one goes out the door, not weeks apart. HR leaders who can point to that full allocation are negotiating from actual data. HR leaders who lead with an apology for the headline number, and let the rest of the story trickle out later, are conceding an argument the data does not support.
Related: Companies Are Widening Spans Faster Than Support Grows and Onboarding Paperwork Is Quietly Costing Retention track the same retention math from other angles.
Source: WTW
