Salary budgets are steady, even slightly lowering, so targeted pay and total rewards are doing the heavy lifting
Organizations across the country are keeping their compensation planning cautious, according to reports.
A survey from Mercer projected the average total salary increase in Canada for 2026 will be about three per cent. Several other reports forecast a range from 2.7 to 3.3 per cent.
That direction aligns with Signal49 Research’s pulse check for February, which projects average base salary increases for non-unionized employees at 3.1 per cent and salary range increases at 2.5 per cent — a slightly downward revision from earlier estimates, which in turn were slightly lower than the previous year.
As salary increase budgets remain flat and even go slightly downward, HR leaders are being asked to “do more with less” in their compensation planning — but also to be more precise.
A cautious approach to compensation planning
Stephanie Hollingshead, CEO of TAP Network, a nonprofit peer network for people and culture professionals in Canada’s tech sector, is seeing organizations shifting their compensation planning to a more cautious approach. “We have certainly seen the salary budgets tightening up a bit — it started last year, when for the first time in a while the actual spend on salaries was coming in at the same amount as the budget, while in past years, the spending [in the tech sector] had been blowing past the budgets,” says Hollingshead. That means fewer emergency offers and more emphasis on disciplined annual cycles, she says.
It appears compensation planning is stabilizing after a few years of unsteady projections. In the Signal49 pulse survey, only 28 per cent of organizations have adjusted their 2026 salary projections since last summer, and more than two-thirds of those changes were reductions. During the pandemic and its aftermath, mid-year re-forecasts were common as employers chased inflation and countered outside offers, according to Diogo Borba, senior research associate, human capital, at Signal49 Research, but he says that most now seem to be holding their course.
“We’re going back to the pre-pandemic era where organizations typically got it right because the data that was available was more predictable,” says Borba, who notes that those who are making changes are making small adjustments of 0.1 per cent to 0.5 per cent. “It seems like there's not a lot of changes occurring that justify overall changes in projections.”
Hollingshead says that more organizations in the tech sector are able to stick within their budgets by not having to account for large market corrections, which has led to more stable compensation planning for this year.
Less pressure for large, across-the-board raises
Signal49’s broader outlook points to modest employment growth and easing inflation into 2026. That softening macro picture reduces pressure for large, across-the-board pay hikes, but the national numbers can be misleading.
“Whenever you have those tight markets, compensation is definitely a factor,” says Borba. “We have research, for instance, that shows that around 42 per cent of employees have left organizations for a better salary.” For people leaders being asked to do more with less, that’s a reminder that small gaps in pay can still trigger expensive turnover in key segments, even if the overall budget feels sustainable.
“When we ask about what adjustments they made, it's really market adjustments and trying to get vacancies to fill quickly," adds Borba. “So using compensation as a tool for attracting or retaining talent is still the biggest factor.”
Hollingsworth says organizations are sticking more consistently with annual, performance-based pay raises, with off-cycle increases becoming less common. “[Companies] are telling us it’s easier to stick to their budgets because there's less pressure and fewer jobs out there, so employees aren't having other jobs dangled in front of them and getting lured away for more compensation.”
In Canada’s tech sector, a seemingly stable budget can conceal very different dynamics underneath, according to Hollingshead, as some skills remain firmly in the “hot” category, with some “sub-sectors” seeing median pay increases of five or six per cent. “Skills like AI, data science, machine learning, robotics, hardware design and development, technology and engineering, services and consulting,” she says, noting that while many organizations are looking at restraint, there’s still a potential to deviate deliberately where losing skilled talent would be most damaging.
“I think it's become pretty comfortable for companies to put premiums on some of these hotter skills and pay a higher level for them, and I think that employees understand that,” says Hollingshead.
Using total rewards when cash is tight
With room for base increases constrained, employers are leaning harder on other parts of total rewards. Signal49’s pulse data show organization-wide salary freezes are rare for 2026, and most employers with short-term incentive plans are keeping their targets intact, says Borba.
Hollingshead sees flexibility as one of the most important levers. “I think for tech companies, they’re able to lean into a couple of work environment-type attributes that are really helpful for attracting and retaining people, and the biggest one is remote work,” she says. She points to a recent TAP Network survey that shows remote and hybrid arrangements are now nearly universal in the sector, and that flexibility has become a deciding factor for many employees as salary growth moderates.
Other non-cash and indirect tools are also carrying more weight, from learning and development to more thoughtful use of career paths and recognition, adds Hollingshead. “We're using, more than we have in the past, things like promotions and stock grants to help us attract and retain talent right now,” she says. “They're leaning on those non-cash tools a bit more when their budgets are sitting in that three-to-four per cent range.”
A good time to consider retirement savings plans?
One area of compensation planning that Hollingshead sees as an area for attention is employee retirement savings because "there's less pressure on salaries right now and a little more wiggle room in terms of saying, ‘We can take half a percent from our salary budget this year and put it towards starting a retirement savings plan.’”
Less than half of non-retired Canadians have a workplace pension plan, according to a recent survey by IG Wealth Management. Hollingshead notes that in the tech sector, there's next to none, with few RRSP matching programs.
She says this is a disservice to employees, particularly in a sector with more younger workers. “It’s just as important to be saving, probably more so when you're younger,” she says. “It's timely to do it now, while the market is a little softer, and it's a lot easier — you’ll have a heck of a time trying to do something like that in a hot market for talent when you have to use up all your budget and more on salaries.”
This article is part of our Monthly Spotlight series, which in February focuses on compensation planning. Full coverage can be found here.
