Every planning season starts with the same question: what is everyone else budgeting? Pave and Alpine Rewards surveyed 251 companies to see how they're planning for 2027, asking about everything from merit budgets to pay for performance to pay transparency, and much more.
The headline on merit budgets is that it’s business as usual. Organizations are planning a median 3.5% merit budget for 2027—the same as 2026 and 2025. Promotion and adjustment budgets are smaller, at 1.8% in 2026 and 1.5% planned for 2027.
The next two articles in this series will cover how companies reward top performers and handle pay transparency, along with some findings on AI talent and attrition. This post covers the numbers that anchor the budgets: how much, for whom, and how companies decide.
Merit budgets hold at 3.5%
If you were waiting for a signal that merit budgets are resetting, either up or down, this survey doesn't show it. The median planned merit budget for 2027 is 3.5%, matching what the median company actually budgeted for 2026. Despite changing macro economic conditions and rapid impacts on the talent market, merit budgets always seem to settle at the same place. For compensation and total rewards leaders, this usually results in a familiar challenge: do more with less.
Promotion and adjustment budgets are smaller and slipping, from 1.8% to 1.5%. Merit budgets exclude promotions and adjustments, so total salary spend depends on both. If you plan to promote at last year's pace, check that the smaller pool still covers it.
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Company size matters at the extremes, not the middle
Six of seven size cohorts plan the same median merit budget: 3.5%. The exception is companies with more than 5,000 employees, at 3.1%. Their 75th percentile is 3.5%, so a large company budgeting 3.5% is already at the top of its peer group.
The median hides a wide spread. In three bands (fewer than 100, 501 to 1,000, and 1,001 to 2,000 employees), the middle half of companies plan anywhere from 3.0% to 4.0%. If you budget 3.5% at a company under 5,000 employees, you are at the median of your size band, not stretching to hit it.
Technology and life sciences budget the same
At the median, technology and life sciences companies plan the same 3.5% merit budget, and both reach 4.0% at the 75th percentile. Technology has more room at the low end, with a 25th percentile of 3.0%.
Merit is where the two industries look alike. Where they split is in how they handle AI talent, pay transparency, and turnover, which the next article in this series will cover.
Performance decides who gets what
The budget sets the pool, and performance ratings decide how it is split: 87% of companies use them to determine individual merit increases. More than half (59%) also factor in position relative to market, and 49% consider position within the internal salary range. Only 9% give a flat, across-the-board increase, and 6% set increases through union or collective bargaining.
Respondents could select more than one method, so the shares add up to more than 100%. Still, the pattern is that most companies start with performance and many layer on a check against the market or the range. In other words: a 3.5% budget doesn't mean 3.5% for everyone.
Promotions move pay further than merit
Public and private companies promote at almost the same rates. The most common band for both is 10% to 15% of employees promoted (29.3% of public companies and 33.6% of private companies), and about 30% of each group promote more than 15% of employees (30.3% of public companies and 30.0% of private companies).
The raise that comes with a promotion is larger than the merit budget. At 45.5% of companies, the typical promotional increase is 9% to 12%. Only 9.1% of companies typically give less than 6%. Set against a 3.5% merit budget, a promotion is where pay moves furthest, which is why the promotion pool deserves as much planning attention as the merit pool.
What's next
Merit budgets are flat. The real variation is in who gets the money and how. The next two posts look at how companies reward top performers and handle pay transparency, in addition to where they're exposed on AI talent and attrition.
The full report goes further, with merit and promotion budgets by country, percentile spreads by company size, and the cuts by industry and company status that didn't fit here.
Sasha is a marketing writer and editor with a background in bringing B2B SaaS brands to life through content.
