Canadian employees should expect a slightly lower salary increase in 2026, but not the kind of pullback you might expect given the general doom and gloom in the economy.
In recent weeks, consulting firms such as Normandin Beaudry and Mercer Canada have published the results of employer surveys asking about compensation intentions for next year and, while both measured a slight decrease, the overall picture is one of cautious optimism.
Though neither survey asked respondents to explain their salary spending intentions, experts suggest a desire to maintain employee motivation and retention, as well as new pay transparency requirements, may have tempered an otherwise larger tariff-driven pullback.
According to Normandin Beaudry’s survey of 1,000 Canadian businesses, employers intend to lower their salary increase budgets to 3.1 per cent next year from 3.2 per cent this year. Over all, 70 per cent say next year’s base salary budget will be lower than this year, while 27 per cent will raise it and 3 per cent are planning a salary freeze.
By comparison, salary budget increases hovered around 2.5 per cent per year leading up to the pandemic. Then they increased aggressively, surpassing 4 per cent in 2023, before trending downward again.
“The 3.1 per cent [projected for next year] might be lower than this year, but it’s still higher than inflation, and it’s still higher than what we saw for the 10 or 15 years leading up to the pandemic,” says Normandin Beaudry’s senior principal Darcy Clark. “I’ve been doing this for 20 years and I expected the numbers to come in lower.”
While there are variances between industries, Mr. Clark says the distance between employers planning to pay top dollar and those pulling back on their salary budgets isn’t as wide as one might expect in the current economic climate.
“Tech, construction, pharma and professional services were on the upper end of the spectrum, in the 3.5-to-3.8 percentage range,” he says. “Industries below the [3.1 per cent average] line are still pretty close to the average, like manufacturing and retail trade.”
While the data paints a relatively optimistic picture, Mr. Clark warns that it’s just a projection and much can change before those decisions are made final.
“Anything can happen between now and February in terms of trade policies with the U.S. and those could be very quick changes, either to the benefit or detriment of the Canadian economy,” he says. “So those big macro-GDP and inflation numbers will impact the final numbers at approval time next year, as well as tariffs for directly impacted industries.”
Normandin Beaudry’s data is consistent with results of the Mercer’s survey of more than 500 Canadian non-unionized employers in July, which also anticipated a 0.1 per cent decrease in salary spending for next year, compared to 2025 — to 3.2 per cent from 3.3 per cent.
That survey also found that 90 per cent of respondents are in the preliminary phases of setting their salary increase budgets for 2026. However, 70 per cent of respondents expect macro-economic factors to impact compensation decisions before they’re made final.
“Being at 3.2 per cent is actually a little bit higher than what I personally expected to see, just based on the broader economic situation,” says Elizabeth English, senior principal in Mercer Canada’s career products business (or division). “Even in not great economic years, we see organizations spend the money to keep their workforce motivated and retained.”
Mercer’s data also showed little variance across sectors, with salary increase projections ranging from 3.1 to 3.5 per cent. Tariff-affected industries such as automotive manufacturing were more likely to fall to the lower end of the spectrum, while more service-oriented sectors such as tech and insurance occupied the higher end.
Ms. English suggests that while tariffs and economic uncertainty may be dragging salary budgets down, Ontario’s new pay transparency requirements, which go into effect in January, might also be inspiring employers to spend a little more than they otherwise would.
“Before you post a salary range for a new position, you want to do an analysis to see how your current employees stack up,” she says. “Moving into this pay transparency era, organizations are spending time to address equity concerns and make sure that their long-tenured, outstanding employees are compensated fairly [compared to new hires].”