HR can reward ‘scarce skills’ in light of moderate raise budgets

Economic uncertainty and considerations around talent are weighing heavily on employers’ salary budgets going into 2027, a recent survey from global professional services firm Marsh (formerly Mercer) found.

Employers plan to grant merit raises of 3.2% on average in 2027, according to a survey fielded in mid-July. Total salary increases—which include not only merit raises, but also promotions, cost-of-living, and other adjustments—are set to rise by 3.5%.

These moderate increases are largely in line with what employers granted between 2024 and 2026, leaders with Marsh told HR Brew.

“The high water mark was 2023 post-pandemic, seeing that spike in pay, and since then we’ve seen compensation budgets moderate,” Mark Bowling, senior principal with Marsh Workforce & Rewards, said. Merit increases averaged 3.8% in 2023, per Marsh, as HR leaders sought to retain talent on the heels of a historically competitive labor market.

Talent strategy continues to be top of mind for employers that are increasing their salary budgets next year, Marsh found. Among this group, 60% cited “continued attraction and retention challenges” as the top factor driving an uptick in annual salary increases. Among employers that are planning to decrease annual raise budgets, “economic uncertainty” was the most cited factor for doing so, with 51% of employers pointing to this.

High tech workers are poised to see the most generous merit raises next year, at 3.8%, while employers in the consumer goods sector are budgeting 2.9% increases.

Bowling noted that consumer goods and retail tend to be the sectors most affected by discretionary spending. “With everything going on with affordability, certainly we’re seeing some through lines there with those two industries being most most impacted,” he said.

How will these trends affect compensation strategy? Given salary raise budgets look likely to grow at a moderate pace in 2027, HR teams can consider finding creative ways to differentiate awards among their workforce, John Legg, US commercial leader for Marsh Workforce & Rewards, said.

These moderate budget increases “really [reinforce] the importance of your comp strategy,” Legg told us. “This cannot be, ‘put it on autopilot, let it run.’”

HR teams should consider granting merit awards not only to top performers, but also employees with “scarce skills” needed for “critical roles” within the organization, he said. Employers should be aware of their retention risks, and consider how AI developments will affect not only their current, but future, talent needs, he added.

“It’s not just who got your highest performance rating. It’s really taking those other good factors into consideration and making sure that you’re rewarding and retaining the people that fit the various buckets in alignment with that strategy.”

Businesses generally pay a higher price for AI talent, according to previous reporting from HR Brew. A 2025 analysis from research firm Lightcast found employers pay 28% more in annual compensation, on average, when they add AI skills to a role.