2027 Raise Outlook: Back to 3%-3.5%, but Only the Must-Keep Employees Win Big

2027 salary budgets are stabilizing around 3% to 3.6%

A 3.5% raise can sound fine until you ask whether it keeps pace with inflation. That is the basic setup for 2027 pay planning. The encouraging news is that raise budgets are still in place; this looks more like stabilization than another wave of across-the-board cuts. The less encouraging news is that the easy "everyone gets one" era appears to be ending.

The numbers point to stability, not a surge

The forecast is flat to slightly softer, not dramatic: - WTW expects 3.4% average salary increase budgets for 2027, down from 3.5% in 2026. - Gallagher says budgets are settling around 3% to 3.5%. - WorldatWork projects a 3.6% mean for 2027 after 3.6% actuals in 2026.

The raise pool is still there, but it is not expanding in any obvious way.

Why the headline average matters less than the split

The bigger change in 2027 is not the size of the pool but how employers plan to divide it. The surveys show a clear move away from broad increases and toward targeted, merit-based increases for top performers and employees in critical roles. That makes 2027 more of a must-keep market than a participation-budget market.

Gallagher expects 3.3% average increases as employers target retention

Budget stability is only part of the story. Gallagher now expects average salary increases of 3.3% in 2027, down from 3.7% this year, while employers shift toward performance-driven and retention-focused pay strategies. WTW says employers are moving away from broad raises and using pay more precisely for top performers and employees in critical roles.

That is the practical takeaway: when raise budgets are steady or softer, companies are more likely to aim increases at the roles and skills they cannot easily replace.

Who is most likely to win

If raise money is capped, managers are more likely to protect the people who keep operations, service, and delivery moving. That does not guarantee a big increase, but it improves the odds for workers whose roles are clearly tied to revenue, risk, customer demand, or day-to-day continuity.

The opposite situation is harder: if a role is less scarce and less visible to the business, a company can keep a stable budget on paper and still give only modest increases.

The inflation test still matters

The economic backdrop is mixed. The IMF still expects global GDP growth of 3.1% in 2026 and 3.2% in 2027, while also projecting headline inflation of 4.4% in 2026 before easing to 3.7% in 2027. That helps explain why workers may feel squeezed even when budgets are "back" to a more normal 3% to 3.5% range.

The BLS Employment Cost Index measures hourly labor cost and includes both wages and benefits. That means employers can make base-pay increases more selective without necessarily changing the broader compensation picture.

What workers and employers should do before review time

This is no longer a "show up and expect a slice" cycle. Employers are already leaning toward targeted, merit-based increases, with pay decisions increasingly aimed at the roles and skills that matter most.

For workers: make the case before review season

If the pool is stable but selective, your case needs to show why your output matters in practical terms.

• Document durable outcomes, not just effort. Focus on the problems you solved, risks you prevented, and work that kept customers or operations moving.
• Show scarcity and dependency. Explain who depends on your work and what would break if the role were understaffed or vacant.
• Compare your ask with the cost-of-living backdrop. If pay still feels behind living costs, say so plainly.
• Ask for a specific increase and tie it to the value you deliver.
• Start the conversation early, before the formal review.

For employers: clarity matters more than a decent average

If companies keep moving toward performance-driven pay strategies, they also need to explain how those decisions are made. Merit remains the primary driver, so workers need to understand what merit means in practice, why outcomes can differ for people in similar roles, and what the path is for those who do not receive the largest increase.

The main risk is simple: workers will be disappointed if they prepare as though everyone gets a raise, and employers can damage trust if they assume a stable budget will be felt as broad comfort. In a selective merit year, the allocation of dollars matters more than the average.