The latest Salary Budget Planning Report by WTW has forecast that average salary increase budgets for UK companies in 2027 are expected to remain stable at 3.4 per cent – in line with 2026’s actual increase of 3.4 per cent.
The report found that pay budgets remained largely steady in 2025, with over half (52 per cent) of organisations reporting no change between anticipated and actual salary budgets. Cost management pressures (35 per cent), inflationary pressures (30 per cent) and anticipated recession or weaker financial results (27 per cent), continue to drive employers’ cautious approach to salary planning.
“Salary budgets may be holding steady, but the way organisations are using their budget is changing significantly,” said Paul Richards, senior director, Rewards Data Intelligence, WTW. “Employers are moving away from broad-based increases and toward more precise, performance-driven pay strategies that target the roles, skills and talent segments that matter most.”
This shift is already reshaping how employers manage compensation programmes. Almost a third (31 per cent) are adjusting their programmes, with another 19 per cent planning future changes. Other changes include: raising starting salary ranges (32 per cent), hiring at higher salary ranges (30 per cent) and increasing the use of retention bonuses or spot awards to help secure key employees (29 per cent)
Economic uncertainty and financial pressures are also contributing to steady retention levels, with most employees (85 per cent) remaining with their current employers and only 17 per cent of companies adding head count. Rather than relying on hiring alone, employers are focusing on other ways to strengthen the employee value proposition, including improving the employee experience (43 per cent), expanding training opportunities (38 per cent) and placing a broader emphasis on diversity, equity and inclusion (38 per cent).
“Salary increase budgets reflect the current balance between the supply and demand of labour,” said Ruchi Arora, senior managing director, Work & Rewards Europe, WTW. “While the focus is often on the low demand for labour, most leaders forget that we are still in the throes of low supply. Employers will continue to experience salary increases in the “land of 3 per cent” for the foreseeable future given these dynamics. Those who focus on using that money wisely will be the ones that win the inevitable war for talent once demand picks up.”
