Employers Drop Across-the-Board Raises for Merit Pay in 2027

Fewer American employers plan to hand out the same raise to everyone next year, according to new data from Payscale, a compensation and benefits software company.

Just 32% of employers say they are planning a standard, across-the-board increase for workers in 2027, down from 36% who did so in 2026. Instead, companies are steering more of their pay budgets toward merit-based increases and other rewards for top performers.

"We are seeing organizations realize that they need to deploy pay strategically," Ruth Thomas, Payscale's chief compensation strategist, told CBS News. "They need to think about business transformation, and part of driving that is allocating pay budgets differently."

The findings come from a Payscale survey of roughly 1,300 human resources and compensation executives conducted in May and June.

Raises barely move

Overall, employers plan to raise base pay by an average of 3.5% in 2027, up just 0.1 percentage point from this year.

"The size of the compensation budget pie is not getting bigger, but there's a shift in how employers are choosing to slice it," Thomas said.

Those increases will keep worker pay ahead of inflation, but perhaps not by much, she said. Economists expect inflation to cool in the second half of the year and into 2027.

Wide gaps by industry

The averages mask large differences from one sector to the next. Aerospace and defense employers and business services firms are both planning average base pay increases of 4.5%, followed by legal services at 4.2% and pharmaceutical and biotechnology companies at 4%.

Construction is at 3.9%, and distribution, logistics and transportation at 3.8%. Architecture, engineering and design and manufacturing are each at 3.6%. Education and energy and utilities match the overall average of 3.5%.

At the lower end, financial services, food, beverage and hospitality, insurance, real estate and technology are all at 3.4%. Consumer goods, media, sports and entertainment, nonprofits and retail come in at 3.3%, and health care and social assistance at 3.2%.

Government employers plan 3% increases. Telecommunications ranks last at 2.5%.