Salary Budgets 2026: What to Expect

Diana Scott: Welcome to C-Suite Perspectives, a signature series by The Conference Board. I'm Diana Scott, center leader of the Human Capital Center at The Conference Board and the guest host for this podcast episode. Joining me today are Mitchell Barnes, economist focused on labor markets within the Economy, Strategy & Finance Center, and Rita Meyerson, a principal researcher in the Human Capital Center of The Conference Board.

Overview of Salary Budgets for 2026

Diana Scott: We're here to discuss our recent research on what to expect for salary budgets in 2026. Welcome, Mitchell and Rita. Okay, Mitchell, I'm going to start with you. The report notes that pay increases remain firm despite economic uncertainty, with 2026 budgets expected to hold near the 3.5% median reported for 2025. The report also shows that 2025 to 2026 salary budgets cooling from post-pandemic peaks, but staying above pre-2020 averages.

Economic Forces Impacting Salary Trends

Diana Scott: [00:01:00] So tell me, how do the broader economic forces, things like inflation moderation and hiring slowdowns, explain this trend?

Mitchell Barnes: Certainly, and I think one of the biggest trends, and I think our survey did a good job of kind of drilling into some of the motivations behind the numbers that we've seen in the labor market. But one of the stories that we've certainly been tracking over the last two or three years is the pulling back of a lot of the quits, a lot of the job openings, a lot of the turnover that a lot of organizations were experiencing and the pay premium that was attached to that. A lot of workers were jumping to new opportunities, seeing quite a bit of a pay bump. So I think that really brought all boats up, to use that analogy, of really looking at retention broadly.

We've seen a diversification in strategies to do that. But we at least acknowledge that uncertainty is playing a big part. When we asked these companies what is the top concern that is giving you pause with your workforce strategy, we had 61% highlight economic uncertainty [00:02:00] broadly and others that specifically referenced trade, technology automation, as well as immigration. There's some uncertainties driving this.

Diana Scott: Wow. So it's really that Great Resignation is no longer happening from 2022. We've really reversed from that.

Mitchell Barnes: Yeah, absolutely.

Human Capital Perspective on Workforce Resilience

Diana Scott: So Rita, from a human capital perspective, since you sit in the Human Capital Center, why do you think, despite all of that, companies are maintaining their resilience?

Rita Meyerson: It's such an interesting question, Diana, and I think about your role both in the Human Capital Center and previously as a chief human resources officer (CHRO). I think that as we move into 2026 and beyond with this economic uncertainty, CHROs are going to really have to partner closely with the C-Suite on workforce and labor strategies, and compensation being top of mind for that.

This really needs to come from the top in terms of how you use your dollars [00:03:00] and where they go in order to retain your top talent and your critical skills. We're going to get into that, but I do think that it's gonna be a much more strategic process and compensation managers are going to need to be brought along from a change perspective.

Diana Scott: I used to say it's no longer the peanut butter generation now. You just kind spread it across. That's really interesting and I don't know, Mitchell, do you see different sectors having more reductions in force and others not so much?

Mitchell Barnes: There's quite a bit of variation and I think that is something we're trying to trace not only in our survey. Throughout the data that we see is some of the not only broader economic uncertainty, but some of the tariff impacts starting to bleed in not only for businesses, but consumers and some of those related sectors. That is really top of mind, trying to trace some of this. We do a pretty good job of asking not only about hiring, but is that a hiring for expansion? Is that really the pace that you are backfilling, [00:04:00] attrition that you were losing?

We actually see more of a slowdown in that attrition backfill than we do outright expansion hiring. As you had mentioned, maybe a little bit of a tick up in reduction in force versus the last six months. But the labor hoarding story that we've heard about from the last several years still, at least to this point, holds true.

It is better to have really all of the workers that you need, especially in an uncertain time as these companies restrategize, than it is to be out and really need to go back to the market and hire a bunch of workers that these companies had to do several years ago.

Diana Scott: Are you seeing reductions in force in certain sectors more so than others?

Mitchell Barnes: Again, bringing in a little bit of the labor market context, we had some sizable revisions the last several months. One of the things that did is actually clarified a little bit of more weakness in the hiring environment for some of the sectors we know to be impacted: manufacturing, construction, etc.

Our survey actually pointed to similar things, not only some of those impacts, but even on maybe the [00:05:00] hiring demand fronts, a little bit of challenges in health care. Technology is really a sector that is going on its own stories path right now.

Diana Scott: Yeah. And we've seen a lot of that in the news, that's for sure. What do you think is driving the paradox of layoffs? Because you do see some premium pay along with some of those very scarce roles and you see this real paradox.

Rita Meyerson: It's an important question and Mitchell and I had the opportunity to do this research last year. We're comparing our data and I'm also thinking about our Reimagined Workplace report that we did earlier this year where we saw reductions in force, seeing an increase in that, from reduction in operating expense. You need to compete in today's marketplace. So it's not that businesses are slowing down and you, across the board, are going to be making cuts. What our survey found was that the [00:06:00] backfill rate is slower and job expansion has slowed. While reduction in force is certainly a lever in operating expense management, we are seeing the need to focus on other base pay actions including promotions, market adjustments, and, really, on hot skills. Whereas previously we were talking about this shift from 2022 and the Great Resignation to where we are now in 2026, we saw a little bit more focused on retention, one-time bonuses, other type of one-time pay issues. All of this changes the overall employee experience and fairness and retention, which is why this is such an important time for people managers to be lockstep with the overall compensation strategy and how it fits into the business strategy.

Mitchell Barnes: I just wanted to jump in quickly and say, we did find, at least if you take a, how many companies are increasing hiring, same and less? We have a [00:07:00] net, essentially, negative of 19% of our population had scaled back the pace that they were filling attrition, right?

But that is, is one story. The other side of the story is, actually, we see an incredible boost, not only in-- of course we're gonna talk about-- automation. And we asked, versus six months ago, have you increased or decreased, or roughly held consistent, your pace of implementing automation?

That was up 78%. So that is a net 78% of our respondents said that they had ticked that up. And I think that was 30%, no, 28% net. So 30% said that they were increasing that pace. Only 2% said they had actually decreased their pace, but the biggest one was actually business model change.

While we didn't necessarily drill into what that business model change looked like, it seems like a lot of these employers are at least recalibrating what their workforce plans look like. And we saw really no slump versus last year in some of the investments around upskilling internally and also [00:08:00] going out and hiring for those hot skills.

So despite broader pullbacks across some of the data, we actually saw some of that increase.

Diana Scott: So there's a need for new and different skills. So they're not only going out to hire for those skills but they're actually reskilling within their existing population.

Mitchell Barnes: Yes.

Diana Scott: So they're retaining the existing folks but they're actually upskilling them as well.

Mitchell Barnes: And I actually, wanna bring in one data point from our CEO confidence survey that was out a couple weeks ago for Q3 of this year. And they asked a special question of, "How are you going to go about managing costs?" And I was actually somewhat surprised.

Automation of course, being that top answer. But the number three answer was actually investing in internal . So I think there's a recognition of where this business model change might go, or at least to remain flexible and really start to invest in, in some of those capabilities.

Diana Scott: That is so interesting. I think some of, and this is really for you, Rita, some of our research talks about organizations are pulling back slightly on retention and internal [00:09:00] pay equity adjustments. But, talk a little bit about what risks that poses for long-term employee engagements, and especially if I can ask this question: DEI priorities: diversity, equity, and inclusion. That still remains a concern across the board.

Rita Meyerson: Of course. And our colleagues around the world, I'm sure that will be listening to this, they wanna hear what's going on in the US. This is of importance to them as well.

Diana Scott: Yes.

Rita Meyerson: So when we think about internal pay equity, it certainly becomes a challenge and we probably could have a whole podcast just on that. When we're, especially when we're focused on these hot skills and we're thinking about being at the precipice of organizational strategic changes, design, and where talent is going to be in the world. So it becomes incredibly complex and focusing as comp managers, when you're given a particular budget, when you're given a budget and you're thinking, and [00:10:00] you're looking at your, at your pool, in addition to the skillsets, you really need to look at where people are within the salary bands.

And, of our 460 respondents, the majority of them talked about having some sort of salary band structure. And it really poses a challenge. We even see that as C-Suites are expanding with new roles, they also, at that level, are going to be having that kind of paradox of equity across the board.

And how do you manage that from a team dynamics perspective? So you're seeing it at the top of the house and you're seeing it within your teams. And that then puts additional pressure on people managers to be incredibly mindful of this when they don't have as much flexibility, perhaps, with their budgets.

Diana Scott: Oof, that sounds like a really tough situation that you're putting the managers in.

Mitchell Barnes: Yeah, let me add just one, maybe, bright spot on the general [00:11:00] retention tools that we're talking about. I think there were a couple of points, especially in the sector data, especially, even for, perhaps, those medium-sized businesses where we were seeing evidence of labor shortages.

Manufacturing has, traditionally, been hard to get the right fit of talent there and adequate number. I think we actually saw an uptick in pay equity and bringing up to minimum. I can't recall exactly the shifts or at least the adoption of some of the pace structure. But I think there is some way in which the evolution of the last several years, maybe some of the slight step backs that we've seen, is actually from quite a high level in some industries. And some others are, I think, going to play catch up now that they have seen some of these varied compensation plans, see some of these tools, and need to address some of their own labor concerns.

Diana Scott: That's great. And I think that says a lot about the concept of retention, equity, and even a little bit about upskilling. So I think with that, we're gonna take a short break and be [00:12:00] right back with more of my conversation with Mitchell Barnes, economist for the Labor Markets Institute within the Economy, Strategy & Finance Center.

And Rita Meyerson, a principal researcher in the Human Capital Center of The Conference Board.

Welcome back to C-Suite Perspectives. I'm your host, Diana Scott, center leader of the Human Capital Center at The Conference Board. I'm joined by Mitchell Barnes, economist for the Labor Markets Institute within the Economy, Strategy & Finance Center; and Rita Meyerson, a principal researcher in the Human Capital Center of The Conference Board.

Okay.

Automation and Its Impact on Compensation

Diana Scott: We've had a very interesting conversation so far about salary increases and I wanna turn the conversation to a little bit more around automation and productivity. So, Mitchell, the report shows 30% of companies increased automation adoption in early 2025. I'm really curious, how do you see automation reshaping compensation structures and [00:13:00] wage growth over the next few years?

Mitchell Barnes: Yeah, I think that is going to be a big question. We know that, at least, some of the really scarce talent around some of these AI skills right now are fetching quite high premiums.

I think we've all seen some of the recent headlines. But how this really plays out more broadly I, I think is really an open question. I think that is at least one reason you see some of these companies turning inward to upskill because there's just not this golden pool of AI talent sitting out there.

We have not necessarily cultivated it yet. But I do wanna say, because one of the questions out there is, is some of the AI adoption and some of the progress we might be seeing there, is that actually tempering the labor market for potentially young workers coming out of school?

I don't know that we necessarily have any new evidence out of here, but I do wanna highlight that we saw the biggest kind of scaling up in the last six months in that reduction in force, permanent layoffs among technology. They also showed that they were the furthest along and then [00:14:00] jumping pace in implementation of AI and then acquiring hot skills. So does that represent potentially a shift away from, I guess, some of the current functions into We are really going to fast forward investment into some of the things that they need to do? I think it's going to be a case by case for every company and potentially different across every sector.

Diana Scott: Wow, that's really interesting.

Pay for Performance and Transparency

Diana Scott: And if those hot skills in AI and technology are the ones that you know are really a big focus then, Rita, you have written about the importance of pay-for-performance messaging. And clearly this is an area where that becomes very important.

So, as an HR leader, what are the best practices? How do you communicate those compensation decisions in a transparent way and how do you build trust? Because these are uncertain times.

Rita Meyerson: This is a really important question, and I think it's important to anchor this also in the generational workforce shift that we're [00:15:00] seeing. And that Gen Z, according to our research at The Conference Board, tells us that 31% of the population by the end of 2025 is gonna be made up of Gen Z and our boomers are retiring at 10,000 per day. So when you think about the shifting needs of the workforce and that Gen Z and millennials, in particular, are looking for further transparency, whether or not it is required by state, it's a best practice that we've seen in our research with our total awards leaders that the transparency of compensation ranges, promotion requirements, even stretch assignments. How you move around within the organization is really important. But if we come back to pay for performance, you really need to ensure, and we know this from our research with several of our member companies and roundtables that you and I have sat in, this pay-for-performance [00:16:00] philosophy really needs to align with the business, the mission, vision, and values of the organization. And that would be unique to every organization. So again, it's having this enterprise-wide philosophy and then within a business unit, working with that particular business leader and maybe that HR business partner or the CHRO for that business unit, working the specific messages that are going to work.

But having an overall pay-for-performance philosophy that we as an organization reward set goals and reward performance-based behavior.

Diana Scott: Yeah. And we see many states now and cities have laws on the books where you are required to be very transparent about pay ranges and you're required to post those.

Yeah. So that, certainly, that transparency is in many cases legally required. But it's also not just about payoff and it's also about to the point that you made [00:17:00] about development opportunities and that Gen Z is looking for much more than just pay. They're looking for opportunity as well as part of that.

Rita Meyerson: Career development and also being part of a purpose-driven organization. How their particular task aligns to the larger mission of the organization and where they might be and where they might see themselves moving around with the organization. So that transparency, I would say, expands beyond the salary ranges to also include development opportunities.

Diana Scott: Did you have something you wanted add, Mitchell?

Mitchell Barnes: I'd love to jump in on that just because I think a counterintuitive finding from, at least most of the surveys that I have found, is that Gen Z has actually a little bit more fear about what AI and automation and some of these trends mean for their roles and their future careers.

I think that is really incumbent on leaders of those organizations to really lay out how they envision that impacting their organization. And I think really giving some of these younger workers a, and all workers, really, a target to aim [00:18:00] for. You know what, at least in the best conception that we have right now, is that future gonna look like?

And how can I start to make decisions to, to better myself? So I think that is, is a big question, especially as we proceed here for the next few years.

Diana Scott: I think that's a really important point. It's not just about the pay, in particular for this generation. It's about so much more. So I have a question for both of you.

I'm sitting here with an economist and a HR leader. And I'm really interested in your perspective on how economists and human capital leaders can best collaborate to shape pay strategies. Because I think it's important that they're both fiscally sustainable, but also really people centered.

So how would the two of you work together? And how do you think people like you should be working together?

Mitchell Barnes: We work together great and everybody should follow our model.

Diana Scott: Great. Okay. We're done.

Mitchell Barnes: I would just say that, one point that I would make-- whether it's AI, whether it's a lot of the [00:19:00] uncertainty we see coming from Washington or I think globally at the moment -- I think it is really important right now, whether this organization has an economist or some of your analytics leaders across all of your business units, really pulling together and saying, "What are the recent developments? What do they mean for our organization? And really what does that impact look like to our plan going forward?"

Rita Meyerson: I'm also thinking, one, I wanted to say, yes, we're very lucky that we work very well together and we collaborate well. And in the spirit of the AI conversation, that is going to be front and center, collaborating across functions and also collaborating potentially with your bots. So that's, I don't think that's going away.

I think that your ability to collaborate and work well with others is probably going to be important in the years ahead. But what I did want to say is that it's really important that, as a CHRO or an HR business partner, that I work closely with my finance counterpart and that we, like Mitchell and [00:20:00] I, are lockstep in our decision-making and our contingency planning.

And we're smart because we are not peanut butter spreading compensation and kinda other base pay actions. We need to work very closely together and to stay within budget. So, I think, that's really important. That ability to work across silos, work across the organization, whether it's this or when you think about AI, I think is really important.

Diana Scott: Yeah, that's a very good point. So I always have to ask this question, if you could give one piece of advice to CHROs and chief financial officers (CFOs), because I agree with you. I think, they both work very closely together. And if they're not, they should be as they prepare for their 2026 compensation plans. So what is the advice that you would give, and I'm going to ask you, Rita.

Rita Meyerson: I think that the ability to collaborate and work closely, you are on a team together. You need to step out of your functional role and you are [00:21:00] on a cross-functional team. And we know this is so important in the C-Suite, it's important as you move down.

You're role modeling this for leaders on your team. They have got to work together to solve comp planning, but strategic workforce planning, and this is not a one time event. I see this as being iterative throughout the year.

Diana Scott: Great. And Mitchell, I guess you can answer that question or you maybe want answer it more from an economist point of view.

Mitchell Barnes: I'd love to because I think it does relate to what I had just mentioned and I think to Rita's point as well. It's not a one-time thing. It's iterative. It has to be updated, especially with how quickly things are moving. But I would say is 2026 obviously is going to be top of mind for those that need to get that on paper. But I think it is also really important, as I have been saying, that there's a long-term plan here. What does our talent pool look like? What do our workforce needs look like? What do our skill needs and how might these role shift really occur as technology starts to [00:22:00] transform this unit and this process here?

I think really, again, putting the heads at the table and saying, "What does this look like, and does next year's compensation and workforce initiatives, does that really fit our long-term plan that is coming together?"

Diana Scott: Wow.

Final Thoughts and Key Takeaways

Diana Scott: And then, in terms of, again, I'm going to ask you to put your economist hat on now, because I think our listeners would want to know from your perspective, what do you think they need to watch out for most closely?

Is it economic conditions in 2026? Do you think it's a demographic issue? Technology? What would you say?

Mitchell Barnes: I think it is probably likely that those are all on the top of the list. And I think it really depends on where you're situated, what you're looking at. Some of these companies are likely feeling some of the policy impacts more directly. Some of them are probably out ahead. We definitely saw quite a bit of difference in our survey between small and large businesses, and note that really that is even medium sized, at least in our survey. We didn't [00:23:00] have too huge of really a small, individual, contributor-type business.

So I think really looking across that gamut is going to be very interesting to see how all of these things play out. But again, keeping your finger in the wind is going to be important.

Diana Scott: You heard it here, folks. There's no simple answer. It depends. Thank you both so much for joining us. It was great to have you here.

Mitchell Barnes: Thanks Diana.

Rita Meyerson: Thank you so much, Diana.

Diana Scott: Great, and thanks to all of you for listening to C-Suite Perspectives. I'm Diana Scott, and this series has been brought to you by The Conference Board.