The hiring market is stagnant and so are budgets, according to a new survey from Mercer. What does that mean for HR in 2027?
By Gillian Manning
Retaining talent can feel difficult to navigate even with a burgeoning budget, but in 2027, HR leaders aren’t likely to have that at their disposal. According to the July 2026 Mercer QuickPulse® US Compensation Planning Survey, compensation budgets in 2027 will be stagnant for the fourth year in a row. While the inflation rate for the 12 months ending in July 2026 is 3.4%, the average merit increase predicted, as of July, across industries is 3.2% and the total predicted salary increase will be 3.5%. This may shift as budgets finalize over the balance of this year. But it’s not nothing, but for many employees, it may not be enough.
Mercer’s 2026 Global Talent Trends survey found that more than a quarter of workers report being unhappy with their job but plan on staying because of a lack of options. Coinciding with that, nearly half of employees say that progression in their organization is based on tenure instead of skills.
“With more employees reluctant to leave their job, this could certainly contribute to slower promotion pathways and added frustration for employees,” Adam Matula, Compensation Consultant for Marsh.
HR leaders are largely planning to minimize the number of promotions, though, despite the added frustration for employees. Executives told Mercer that the economy has led to a deprioritization of both hiring and promotions, with 57% saying the climate will have at least a moderate impact on compensation planning in the year ahead. It is critical that HR leaders plan strategically for 2027.
“Identify the critical roles and skills you need to attract and retain, and make them a priority when developing compensation budgets,” Matula urges. “Leaders should also continue to benchmark pay levels to ensure hiring ranges are competitive and aligned with those talent priorities.”
The economy and the tight budgets it brings won’t be rigid forever, either. So, dissatisfied employees who don’t understand the strategy behind compensation decisions this year could be someone else’s top performer in the near future.
“Given employee sentiment, we can expect that as the market opens up, people could be increasingly looking to make a job change. Those organizations with a clear strategy and robust market insights will be better positioned to compete when the market changes,” Matula says.
Ultimately, HR leaders who view internal promotions not as an added expense, but as a crucial instrument for employee engagement, will be far better equipped to protect their talent pipeline before the market turns. And for those who are constrained by budgets, strong and transparent communication will be key for long-term trust.
