2027 Raise Outlook: Back to 3.5%, but Only Top Performers Should Feel the Difference

2027 Salary Budgets Are Settling Back Toward the Mid-3% Range

Raise budgets near 3.4% to 3.5% look more like a cautious return to normal than a fresh hiring heat wave. For investors and employers trying to judge whether labor costs are about to accelerate again, that distinction matters.

WTW's 2027 outlook is the clearest signal: average salary increase budgets ... expected to remain stable at 3.4%, only slightly below 2026's actual increase of 3.5%. Gallagher points to a similar 3% and 3.5% annually band. That is not a spike. It is closer to the old normal.

Pay pressure is not gone, but it is no longer spiking. Employers are still weighing cost management, a tighter labor market, and inflation concerns. The result looks more like steady labor-cost pressure than a new wage-spiral catalyst.

2027 Budgets Are Becoming More Selective, Not Broadly Constricting

The headline average raise is only part of the story. The more important 2027 question is who gets the money and who does not.

The budget is still growing for many employers

This does not look like an economy heading into widespread pay freezes. 30% of respondents expect higher 2027 salary budgets, while only 8% project a lower one. That suggests many firms still have room to give raises, but not enough room to spread them evenly.

Merit money is getting more targeted

Payscale says 89% of companies offer merit increases, with 3% of the projected 3.5% total salary budget earmarked for merit. That leaves a smaller slice for differentiated performance pay, which makes allocations more visible and more strategic.

That matches what WTW found: employers are moving away from broad-based increases and using pay more selectively. The shift is already underway, with 33% adjusting their programs and another 15% planning future changes. For employees, that means the same headline increase can feel very different depending on whether the role is critical to retention or easier to replace.

Who is more likely to see a meaningful raise?

Based on the survey evidence, higher-impact increases are more likely to go to: - top performers - employees in critical or hard-to-fill roles - talent employers want to retain through bonuses, spot awards, or faster salary pacing

Who may feel less relief?

Workers in more replaceable roles, or in companies where budgets are tight, may see smaller adjustments or slower catch-up increases. Even if overall budgets remain near the mid-3% range, salary budgets in 2027 average at 3.5%-a level that may not fully offset inflation in every case.

For investors and employers, the near-term watch list is simple: more targeted awards, more retention focus, and fewer automatic catch-all raises. If company commentary, turnover, and hiring behavior start to reflect that pattern, the real shape of 2027 labor pressure will become much clearer.