Employers being strategic with comp budgets, rather than delivering across-the-board increases
Canadian employers largely stuck to their compensation projections for 2026 – but they are becoming more selective about who gets what, according to new data.
Only 4 per cent of participating organizations reported giving equal, across-the-board salary increases, according to a survey of 271 Canadian organizations.
The vast majority continue to differentiate pay using individual performance (88 per cent), position relative to market value (80 per cent) and internal equity (71 per cent).
“Canadian employers are being strategic with their compensation budgets, rather than delivering across-the-board increases,” said Elizabeth English, senior principal in the career practice at Mercer, which released the survey.
“With only 4% reporting a ‘peanut butter’ approach of giving the same increase to all employees, companies are prioritizing performance, market value, and internal equity to differentiate pay. This approach is designed primarily to retain top talent in a competitive market.”
Overall increases stay on budget
Merit increases averaged 3.0 per cent in 2026, with average total increases – measuring all types of pay increases, including zeros – reaching 3.3 per cent, according to the survey.
These outcomes align with projections made in October 2025 and reflect employer adherence to previously set compensation budgets.
By employee group, executives received a 2.5 per cent merit increase and a 2.7 per cent total increase, while non-executive salaried employees saw a 2.9 per cent merit increase and a 3.3 per cent total increase, according to Mercer’s findings. Non-executive hourly employees received a 2.8 per cent merit increase and a 3.0 per cent total increase, according to the survey.
A human resources director in Toronto with limited experience should expect to earn anywhere from $117,777 to $161,939 in 2026, according to a separate survey.
Modest adjustments ahead
Most Canadian employers continue to manage pay using formal salary structures, and practices around geographic differentials remain mixed, according to the survey:
- 31% of participants use geographic differentials
- 33% operate in multiple locations but use one national structure
- 34% operate in one or a few locations and only use one structure.
Slightly more than half of respondents plan to adjust their salary structures in 2026, with an average adjustment of 2.7 per cent (excluding those that reported zero), according to the survey.
“This aligns with the typical pattern we see of companies adjusting salary structures annually or biennially and the adjustment being lower than the average merit increase percentage,” said the Mercer report.
Industries diverge on total pay increases
Although national averages remained stable, some sectors moved ahead of others on both merit and total increases:
- Life sciences 3.3% for merit; 3.8% for total increases
- Retail & wholesale: 3.3%; 3.6% total
- Services (non-financial): 2.8% merit;
- Banking & financial services: 2.8% merit; 3.7% total
The higher total increases in banking/financial services compared to merit indicate that base pay was adjusted through mechanisms beyond traditional merit increases, according to Mercer.
