Salary increase budgets ease to 3% as employers take a cautious approach, report finds
A Normandin Beaudry survey of nearly 400 Canadian organisations finds projected salary increases average 3% in 2026, down from a summer forecast of 3.1% as employers tighten budgets.
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By Torontoer Staff
Companies across Canada are projecting average salary increases of 3% for 2026, excluding salary freezes, according to a fourth-quarter report from financial management consultant Normandin Beaudry.
The forecast comes from a survey of nearly 400 Canadian organisations and is slightly below the firm’s summer projection of 3.1%, reflecting what the report calls a steady decline in salary increase budgets since 2023.
What the report found
Normandin Beaudry highlighted both caution and variation across the country. Most organisations are keeping their initial budgets, but among those planning changes more employers are trimming increases than raising them. The report also notes some positive indicators on incentives and hiring plans.
- Projected average salary increase, excluding freezes: 3.0%
- Summer projection: 3.1%
- Survey size: nearly 400 Canadian organisations, fourth quarter
- 74% of organisations are not changing their initial salary increase budgets
- 42% plan to secure additional budget to address compensation challenges
- 47% expect annual incentive plans to pay out 100% or more of target
- 35% plan to increase their workforce in 2026
Why budgets are cooling
Normandin Beaudry links the slowdown to ongoing economic and trade uncertainty that is shaping employer decisions. Organisations are adopting a cautious, gradual approach to salary budgets rather than large across-the-board increases.
As economic and trade uncertainty continues to shape Canada’s market, organisations are taking a cautious, gradual approach to salary increase budgets. At the same time, heightened expectations for transparency are pushing organisations to refine and clearly articulate the holistic employee experience and total rewards they offer.
Darcy Clark, senior principal of compensation, Normandin Beaudry
How employers are responding
Three in four organisations are maintaining the budgets they set over the summer. Among the minority that plan adjustments, more than half are reducing their initial projections, while the remainder intend to increase them. Many employers are also preparing supplementary budgets to address gaps in compensation structures.
The report points to a mixed picture beyond base pay. Nearly half of employers expect bonuses to meet or exceed targets, and over a third are budgeting for headcount growth in 2026. That suggests some firms will use incentives and hiring to manage talent costs while keeping base salary growth modest.
What this means for workers
A 3% average increase, excluding freezes, represents a modest gain for employees. Workers who expect larger raises may find the market more restrained, and the mix of compensation will matter. Employers are emphasising total rewards, so benefits, career development and transparent communication about pay decisions will influence perceived value.
For employees negotiating pay, the report suggests focusing on the full package and timing. If an organisation signals limited base pay movement, conversation about performance-based incentives, role scope or future salary review timing can be more productive than bargaining solely for a higher base increase.
Outlook
The modest downward shift from 3.1% to 3.0% is small, but it continues a pattern of gradual tightening that began in 2023. Employers appear to be balancing restraint on base salaries with selective use of incentives and hiring where warranted. The next set of employer surveys and actual payroll decisions in the first half of 2026 will make it clearer whether the trend continues.
For now, workers and employers should expect cautious salary budgets, clearer communication about total rewards, and a continued focus on aligning pay with performance and broader financial conditions.
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