Modest pay hikes next year could leave some workers lagging inflation

Employers are likely to offer their workers only modest pay hikes in 2027, according to a new estimate.

Salary increases next year are forecast to average 3.5%, including merit raises, cost-of-living adjustments, promotions and other pay increases, Marsh, a professional services firm, found in a survey of 1,000 U.S. organizations.

"2023 was the high-water mark for salary increases, and since then, we've seen them moderate," Marsh compensation expert Mark Bowling told CBS News. "We may have reached a new normal for what organizations are budgeting for salary increases." 

Marsh noted that most employers have yet to finalize their budgeting decisions. If the projections hold, however, limited pay increases could leave many employees barely keeping up with inflation. Consumer prices rose at a 3.4% annual rate in July, although economists generally expect inflation to fade this year and in 2027.

Bowling noted that companies face the challenge of strategically distributing their limited compensation budgets across their ranks, especially amid ongoing economic uncertainty. "They focus on increases where they can have the greatest impact on retention and their business priorities."

That's why many employers are moving away from spreading pay hikes evenly across their workforces in what is known as "peanut-butter" raises in favor of sweetening the comp of strong individual performers, according to Payscale.

Indeed, top performers in higher-paying sectors could see higher pay hikes next year, Marsh's survey shows. For example, the average projected salary increase among high-tech companies is 3.8%, while banking industry workers could see average raises of 3.7%.

By contrast, workers in industries where job opportunities are dwindling, such as retail, could receive lower pay increases that fall short of inflation. 

"There are going to be folks who aren't keeping up with inflation," Bowling said. 

Edited by Alain Sherter

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