Only 32% of Companies Plan Across-the-Board Raises for 2027

Getting a raise used to be relatively straightforward at some companies. Make it through the year, do your job, and expect a little more in your paycheck. In 2027, that last part may require a stronger argument.

Consider two employees earning $60,000 annually. Under a traditional 3% across-the-board increase, both receive another $1,800.

Under a merit-based system, one might collect considerably more while the other gets little or nothing.

According to Payscale’s 2026-2027 Salary Budget Survey, only 32% of surveyed organizations plan across-the-board raises for 2027, compared with 36% that awarded them in 2026.

Employers aren’t necessarily spending less on salaries. They’re becoming more selective about who gets the money.

For employees, that raises a practical question: Will better performance produce better paychecks, or simply make annual raises harder to predict?

Why Companies Are Moving Away From Across-the-Board Raises

Employers have traditionally used uniform salary increases to keep annual pay adjustments predictable.

Everyone receives a similar percentage, payroll costs are easier to forecast, and managers spend less time defending individual decisions.

However, as companies look for ways to reward stronger performance without substantially increasing compensation budgets, that familiar approach is losing support.

The Decline of “Peanut Butter” Raises

Compensation professionals call uniform salary increases “peanut butter raises” because employers spread the money evenly across employees, regardless of individual performance.

Companies have good reasons for using them. Uniform increases simplify payroll planning, reduce disagreements over performance ratings, and give workers some predictability.

However, Payscale’s findings suggest enthusiasm is cooling.

Earlier interest in uniform increases was higher than actual adoption, although the 44% figure measures intentions rather than completed pay decisions.

Among surveyed organizations, adoption fell four percentage points between actual 2026 increases and planned 2027 increases.

Importantly, these figures measure employers, not the percentage of American workers receiving raises.

Why Equal Raises Don’t Always Feel Fair

Imagine two employees doing similar jobs. One regularly trains new colleagues, solves difficult problems, and takes on additional responsibilities.

Another meets the basic requirements of the position.

Giving both employees identical raises keeps the process simple, but it may leave the stronger contributor wondering why additional effort produces no financial reward.

Merit-based raises address that complaint by directing larger increases toward employees considered more valuable.

Of course, deciding who qualifies introduces another problem. Performance isn’t always easy to measure, and managerial judgment can introduce favoritism.

Uniform raises may still work well in large hourly workforces or organizations with structured salary schedules.

Giving everyone the same raise avoids one awkward conversation. Explaining why two people doing similar jobs deserve different raises starts another.

Average Pay Raises Are Expected to Reach 3.5% in 2027

At first glance, salary increase projections for 2027 look relatively encouraging. Employers expect to spend slightly more on raises than they did in 2026.

However, an increase in the overall budget doesn’t necessarily translate into a larger paycheck for every employee.

How companies distribute that money could matter considerably more than the headline percentage.

A Slightly Bigger Budget Doesn’t Guarantee a Bigger Raise

Employers participating in Payscale’s May and June 2026 survey, which collected 1,266 organizational submissions, projected average salary increases of 3.5% for 2027, slightly above the 3.4% actually awarded in 2026.

That difference amounts to just 0.1 percentage point.

Consider what those percentages mean for employees earning different salaries.

Illustrative annual increases before taxes, assuming employees receive the stated percentages.

For someone earning $60,000, moving between a 3.4% and 3.5% increase adds just $60 annually, or $5 monthly before taxes.

More important is how employers distribute the compensation budget.

A company with $1 million in annual base payroll and a 3.5% raise budget has approximately $35,000 available for increases. Management could distribute that amount evenly or award larger percentages to selected employees.

For example, if half the payroll receives a 5% increase and the other half receives 2%, the overall budget still averages 3.5%.

Identical spending, very different employee experiences.

Inflation Could Eat Up Much of the Increase

Nominal wage growth measures how much pay increases in dollar terms. Real wage growth accounts for changes in consumer prices.

Consumer prices rose 3.7% during the 12 months ending September 2026, according to the Bureau of Labor Statistics. That’s slightly higher than the 3.5% average salary increase employers are planning for 2027.

Inflation could slow before those raises arrive, but at September’s annual rate, a 3.5% increase would still leave purchasing power slightly lower.

If an employee receives a 3.5% increase while prices climb 3%, purchasing power improves by roughly 0.5%. If inflation reaches 4%, that employee loses some purchasing power despite earning more money.

Neither scenario represents a confirmed inflation forecast for 2027.

A bigger paycheck is welcome. Buying more groceries with it is a different calculation.

Some Industries Could See Bigger Raises Than Others

National salary increase projections conceal considerable differences among industries.

Payscale’s 2027 projections suggest aerospace and defense employers are preparing some of the largest increases, while telecommunications and government employers anticipate smaller adjustments.

Figures represent industry-level employer projections, not guaranteed individual increases.

For someone earning $70,000, a 4.5% increase produces another $3,150 annually. At 2.5%, the increase falls to $1,750.

That’s a $1,400 annual difference before taxes.

Demand for specialized skills, hiring competition, and available payroll budgets can help explain these differences.

Still, industry averages cannot predict individual compensation. An employee at a financially struggling aerospace company could receive less than a strong performer at a profitable telecommunications business.

Employees should pay attention to industry benchmarks, but company performance and individual pay policies deserve just as much attention.

Performance-Based Raises Could Create New Winners and Losers

Moving away from uniform raises gives employers more freedom to decide who receives additional compensation.

For employees, that creates an opportunity to earn larger increases, but it also introduces greater uncertainty. Much depends on how individual performance is measured and how consistently managers apply those standards.

Employers Want More Control Over Compensation

Merit-based raises allow employers to allocate limited salary budgets toward employees whose contributions they consider especially valuable.

Someone developing difficult-to-replace technical skills, managing larger responsibilities, or consistently exceeding agreed targets may receive a bigger increase.

Payscale’s 2026 survey also found that merit increases accounted for the largest portion of employers’ planned 2027 salary increase budgets.

Crucially, a salary increase budget is usually expressed as a percentage of payroll, not as a guaranteed percentage increase for each worker.

An organization can therefore maintain a 3.5% budget while granting selected employees 6% increases and others nothing.

Merit pay gives management flexibility, although employees who receive smaller increases may see that flexibility somewhat differently.

The Problem Is Deciding What Merit Actually Means

Performance is easy to discuss when results are measurable. A salesperson who consistently exceeds an established revenue target has a fairly straightforward case.

Other contributions are harder to quantify.

Consider an operations employee earning $65,000 who spends several months training new staff and correcting recurring processing errors.

Suppose those improvements save the team 10 working hours each month. Documenting the reduction, recording the changes made, and connecting them to operating costs creates a stronger compensation argument than simply reporting a busy year.

At an illustrative labor cost of $30 per hour, those savings equal $3,600 annually. That doesn’t automatically justify a raise, but it gives management something concrete to evaluate.

Employees performing less visible work need similar opportunities to demonstrate their contributions.

Companies also need consistent performance criteria. Without them, merit pay can reward employees who are better at attracting managerial attention rather than those producing better results.

Rewarding performance sounds sensible. Deciding who gets to define performance is considerably harder.

Companies Still Risk Losing Workers Over Pay

Employers have another problem to consider when distributing raises selectively: Employees can leave.

Payscale’s 2026 survey found that 25% of participating organizations reported losing talent because of insufficient pay increases. Another 53% said they were not experiencing that problem, while 22% were unsure.

Those figures don’t establish that merit-based compensation caused employee departures. They do show that dissatisfaction with pay is already creating retention problems for some employers.

According to the Federal Reserve Bank of Atlanta, workers who switched jobs recorded median wage growth of 4.7% in September 2026, compared with 3.4% for those who stayed.

That’s a 1.3-percentage-point difference, although the figures don’t prove that changing jobs caused the entire gap.

For someone disappointed with a modest annual raise, outside opportunities may still be worth investigating, provided the salary increase justifies the costs and uncertainty of making a move.

Consider an experienced employee denied an expected increase who receives a better offer elsewhere.

Replacing that person may involve recruiting expenses, training time, and temporarily reduced productivity. Colleagues may also absorb additional work until the vacancy is filled.

Not every employee who receives a disappointing raise will resign, and not every company can afford larger salary budgets.

Leaving for another employer isn’t the only option employees are considering. Americans filed 5.67 million business applications in 2025, although an application doesn’t necessarily mean a business opened or became profitable.

As I showed in my look at new businesses in America, many people are starting operations without employees, often selling their own professional skills.

Self-employment can offer more control over earnings, but it also replaces a predictable paycheck with income that depends on finding and keeping customers.

The Pay Budget Matters, but So Does Who Gets It

Only 32% of surveyed organizations plan across-the-board raises for 2027, but that doesn’t mean employers have stopped increasing salaries.

Projected average increases of 3.5% suggest companies still expect to spend more on compensation. Greater attention to merit-based raises means employees may receive considerably different outcomes.

For employers, allocating raises selectively offers an opportunity to recognize valuable contributions, provided performance decisions are credible and consistent.

For employees, knowing how those decisions are made may become as important as knowing the annual salary budget.

An average raise tells workers how much companies expect to spend. Their performance review may tell them how much of that money is actually coming their way.