Our Take
Performance-based pay remains entrenched despite equity concerns, with only minimal adoption of equal-raise policies that other surveys suggest are gaining momentum.
Why it matters
HR leaders face pressure to address pay equity while maintaining performance incentives, creating tension between fairness perception and merit-based compensation strategies.
Do this week
HR teams: audit your current merit increase distribution by demographic groups before next cycle planning to identify potential equity gaps.
Merit increases stayed dominant at 3.1% average
Mercer's QuickPulse survey of 756 employers found that just 4% implemented across-the-board salary increases in 2026, with the vast majority sticking to merit-based raises. The mean merit increase reached 3.1%, slightly below the 3.2% projection from October 2025 (per Mercer survey data).
Total pay increases averaged 3.4% versus a predicted 3.5%. High tech led with 3.6% total increases, while chemicals and manufacturing trailed at 2.9%. Most employers continued using formal salary structures where jobs are assigned to pay grades based on market data, with over half factoring in geographic differences.
The data contrasts with Payscale's 2026 report showing 16% of companies ready to implement equal raises and another 18% considering them. Healthcare services improved from previous years' bottom-tier performance, delivering 3% merit and 3.3% total increases.
Equal raises face adoption barriers despite equity push
The 4% adoption rate reveals the gap between policy discussion and implementation. While compensation consultants report growing interest in peanut butter raises as an equity tool, actual deployment remains minimal. Merit-based systems persist due to manager preferences for performance differentiation and concerns about losing top talent to flat increase policies.
Industry variations were surprisingly narrow, with no sector exceeding 3.2% merit increases despite earlier optimism in high tech. This compression suggests economic constraints outweighed sector-specific labor competition in driving 2026 compensation decisions.
Performance systems need equity audits
The persistence of merit-based increases makes bias detection critical. Companies maintaining performance-linked raises should analyze distribution patterns by gender, race, and tenure to identify systematic gaps that equal-raise advocates seek to address.
For organizations considering peanut butter approaches, the 4% adoption rate indicates first-mover risk but also differentiation opportunity in tight labor markets. The key trade-off remains retention of high performers versus perception of fairness across the workforce.
Geographic adjustment practices, used by over half of surveyed employers, offer a middle path between pure equality and pure merit, suggesting location-based equity may gain traction before performance-blind policies.