Two-thirds of employers say increases for 2026 to be lower than those given in 2025
As Canada braces for an economic slowdown in 2025 and 2026, a new survey reveals that employers are tightening their belts—and paycheques may soon feel the pinch.
With the OECD warning of slower growth and rising unemployment, Canadian organizations are recalibrating their compensation strategies to weather the storm, according to Gallagher.
Nearly two-thirds of participating organizations indicate that the increases planned for 2026 will be lower than the increases granted in 2025.
The average salary bump for non-unionized employees is expected to drop to 3.1% in 2026, down from 3.5% this year and 3.8% in 2024—a return to pre-pandemic norms.
Regional, sectoral differences with salary forecasts
Not all regions and sectors are feeling the squeeze equally. Quebec leads the pack with the highest actual and forecasted salary budgets (3.4% and 3.2%, respectively).
Legal services, real estate, and professional services are the most generous sectors, offering increases of 3.7%, 3.5%, and 3.4%, says Gallagher.
On the flip side, educational services, municipalities, and foundations are holding the line at the lower end, with raises as modest as 2.7%.
Globally, economic prospects are weakening, with substantial barriers to trade, tighter financial conditions, diminishing confidence and heightened policy uncertainty projected to have adverse impacts on growth, according to the OECD’s latest Economic Outlook.
Global growth is predicted to slow from 3.3% in 2024 to 2.9% in both 2025 and 2026. The slowdown is expected to be most concentrated in the United States, Canada, Mexico and China, with smaller downward adjustments in other economies.
Variable pay, indexation budgets
One-third (32%) of Canadian organizations have confirmed additional budget dedicated to managing special cases addressing high-potential, at risk or fast-tracking employees, finds the survey.
However, salary structure indexation budgets are slightly lower compared to 2025, at 2.7% excluding freezes, although they remain higher than the 2.0% - 2.5% pre-pandemic budgets.
“It's important to adjust salary structures so that they remain competitive and don’t fall behind the market. However, 20% of organizations do not plan to index their structure in 2026,” says Gallagher.
Non-monetary programs are still leveraged by 30% of organizations, such as training, mentoring, development, special projects, and career management programs. These programs are, however, also seeing a decline in usage compared to 44% in 2024 and 42% in 2025.
Attraction, retention less of a priority
While attraction and retention challenges remain relevant HR challenges, their priority to Canadian employers continues to decline:
- 62% in 2024
- 54% in 2025
- 50% in 2026
“Coupled with 8% of organizations who are planning salary freezes, and a declining priority on attraction and retention could mean that organizations are feeling less pressure from a compensation perspective,” says Gallagher.
“Alternatively, they may consider their structure to be sufficiently competitive.”
Pay transparency in Canada
With pay transparency legislation passed in British Columbia (2023) and Ontario (2026), 84% of organizations reported that their managers have resources to support them in this process.
However, these resources are often limited to support from HR (77%) or organizational documents and policies (68%), finds Gallagher.
On the other hand, 27% of organizations state that they provide specific training on compensation to their managers.
