Merit remains king, but standardized raises gain traction; Canadian salary increase budgets lag behind US
Organizations are maintaining salary increase budgets at 3.5% for 2026, the same level as in 2025, according to Payscale’s 2026 Compensation Best Practices Report.
The report, which surveyed employers across the United States and Canada, found median base-pay increases remained unchanged year over year. The Pay Increase Preview Report offers an early look at compensation trends, with the full report scheduled for release in late February.
Geographic differences persist
Salary increase expectations continue to vary by region, with US employers planning higher raises than their Canadian counterparts. For 2026, US organizations projected 3.5% base-pay increases, while Canadian employers expected 3.2% increases.
These differences reflect economic conditions: US inflation slowed to about 2.7% annually by late 2025, down from peaks above 8% in 2022, but still above the Federal Reserve’s 2% target. Canadian inflation held at 2.2% in November 2025, aligning with the Bank of Canada’s target.
Recent labor market data indicate US wage growth is also moderating. The Employment Cost Index showed the slowest annual increase in wages and salaries since mid‑2021.
The report found that 45% of organizations factor the cost of living into pay decisions, including 43% in the US and 60% in Canada. Merit and performance remain the primary drivers of pay increases at 76%, followed by market adjustments at 46%.
Growing interest in across-the-board raises
A notable trend for 2026 is growing interest in across-the-board salary increases, sometimes called “peanut butter” raises. More than 40% of organizations are either using or considering standardized pay increases.
The survey found that 48% of organizations plan to continue performance-based pay increases, 18% are considering peanut butter raises, 16% plan to implement them for the first time, and 9% already use them. Among top performers who exceeded 2025 revenue goals, the trend rises to 56%.
Confidence remains high
Despite flat salary budgets, 60% of employers believe their 2026 pay increases are competitive for retaining and engaging talent. Confidence is stronger among Payscale customers, with 70% reporting they are fairly or very confident their increases are competitive for attracting and retaining staff.
Source: Payscale
Globally, compensation patterns are shifting as workers increasingly value benefits and flexibility alongside salary growth. Employers are adjusting strategies to balance direct pay increases with enhanced benefits packages that address workforce expectations for work-life balance and financial security.
