Salary budgets for 2026 are projected at 3.4%. That sits well below the post-pandemic peaks and below what most of your people expected. Meanwhile, posted pay ranges and legally protected wage conversations mean your people arrive at the review with data. A manager script alone cannot hold that conversation together. This article explains the upstream work that makes the low-raise discussion manageable, and what to say when the number is small or zero.
Why the low-raise conversation is harder in 2026
WTW surveyed 1,876 organizations between September and November 2025 and found that 3.4% is the projected average salary increase budget for 2026. That holds steady with 2025's actual figure but represents a meaningful step down from the post-pandemic peak of 4.4% in 2023. WTW also found that 21% of those organizations now plan to decrease their 2026 budgets from earlier projections, while 62% are holding steady. A meaningful share of your people will receive increases that trail their own expectations, and some will receive nothing at all.
Jackson Lewis reports that 14 states plus the District of Columbia have pay transparency laws in effect, with Delaware phasing in by September 2027. Where salary ranges appear in job postings, your people can see what the market pays for their role. Under Section 7 of the National Labor Relations Act, most non-supervisory private-sector employees are legally entitled to discuss wages with colleagues, and policies that prohibit those conversations are unlawful. Many already do.
The conversation with the manager in the review is no longer a private exchange. Your people arrive with data, peer comparisons, and expectations formed by publicly available information. A well-meaning conversation that cannot reference a coherent pay framework does not reassure. It creates more questions than it answers.
The fix is upstream: a visible compensation philosophy
Most guidance on communicating a low raise focuses on the conversation itself: the framing, the tone, the script. None of that is wrong. But it treats a downstream symptom. The conversation can only work if it references something the employee already knows.
The mechanism is not the conversation itself. It is the coherent pay framework the conversation can point to.
A compensation philosophy makes explicit the principles behind pay decisions: what the organization values, how it weighs performance against tenure and market position, and what drives variation in outcomes. When your people have heard that philosophy articulated all year in onboarding, in manager conversations, and in how-pay-works communications, the review-time discussion references a structure they already accept. When they have not, any number feels arbitrary.
This is why the organizations best positioned to deliver a 3.4% pool without losing trust are the ones who did that upstream work before the cycle started.
What a compensation philosophy needs to make explicit
A compensation philosophy is not a pay equity statement or a benefits summary. It is a set of explicit decisions your organization has made about how pay works, communicated clearly enough that a manager can reference it in a review conversation without having to improvise.
At minimum, a philosophy should address:
- How pay is determined. Is compensation primarily performance-based, market-anchored, or tenure-weighted? Most organizations use a combination, but your people need to know the weighting.
- How the market is defined. What data sources set your pay bands? Local labor market, national benchmarks, industry surveys? Naming this establishes why a posted range may look different from your internal bands.
- What the budget pool is and why. If budgets are constrained by business performance or external conditions, saying so is honest and usually accepted. Silence is not.
- What growth looks like outside compensation. Career development, title progression, skill investment, and flexibility all carry real value. A philosophy that names them makes the full picture visible before the review conversation begins.
Action item: If your managers cannot explain in two sentences how pay decisions are made in your organization, your compensation philosophy is not visible enough. Draft those two sentences and use them as a test.
Communicating the decision
The conversation itself matters. A clear compensation philosophy gives it a foundation, but how the conversation is structured and followed up determines whether your people leave feeling respected or confused. The three stages below each carry distinct risks if handled poorly.
Before the conversation
Know the number and the rationale before you sit down. Managers who enter a review conversation without a clear answer lose credibility immediately. Your people expect to hear a number, a reason, and a connection to the compensation philosophy. Not hedging.
Prepare each manager with three things: the specific increase (or explanation of why there is none), the relevant factor that drove it (performance rating, budget constraints, market position, or a combination), and one or two sentences that tie it back to the pay framework. This is not a long meeting, but it requires real preparation. HR should brief managers before the review cycle opens, not the day before conversations begin.
During the conversation
Anchor to facts, not reassurances. A common mistake is leading with "we really value you" before delivering the number. Your people can tell when they are being managed. State the outcome first, explain the rationale, then create space for questions.
Be specific about what drove the decision. "The budget pool is 3.4% across the organization" is concrete and verifiable. "We did the best we could" is not. If performance was a factor, say so clearly, without referencing colleagues or making comparisons. If the constraint is external, name the constraint.
Do not close the conversation without a next step. A follow-up check-in, a development goal, or a date to revisit compensation. Something that keeps the relationship moving forward.
After the conversation
Follow up in writing. A brief email summarizing the outcome, the rationale, and any next steps creates a record and reinforces the message. Your people are unlikely to retain all the detail from an in-person conversation, and a written summary reduces the chance of misinterpretation spreading through the team.
If open questions came up, answer them. If you promised a follow-up, schedule it. WTW found that 24% of organizations still report difficulty attracting or retaining employees heading into 2026. Trust built in the weeks after the conversation determines whether those retention risks stay manageable.
What to offer when you cannot offer a raise
A zero increase is one of the harder conversations in the comp cycle. Your people may hear it as a signal about their standing, even when it is a function of budget or business conditions. The goal is to make the full value of their employment visible without overstating it.
Options worth naming specifically:
- Career development investments. A funded external course, a certification, a conference, or a clear path to a title change has tangible value. Name the specific opportunity, not a vague commitment to development.
- Increased flexibility. Schedule flexibility, additional remote time, or a compressed week are valued by most of your people, often more than a modest percentage point.
- Accelerated review timing. If budget conditions may change mid-year, offer a specific date for a compensation review. "We will revisit this in Q3 if [condition]" is meaningful. A vague "we will revisit later" is not.
- Expanded scope or visibility. A high-profile project, a cross-functional role, or a stretch assignment builds the case for the next compensation increase while delivering real development value now.
Common pitfalls to avoid
The conversations that damage trust most are usually not about the number itself. They are about how the number is delivered.
- Delaying the conversation. Your people will hear something, whether from colleagues, posted ranges, or their manager's body language. Waiting makes the conversation harder, not easier.
- Over-explaining. A brief, clear rationale is more credible than a long one. Multiple justifications in sequence start to sound like defensiveness.
- Making promises you cannot keep. "Next year will be better" is only credible if next year's budget is already determined. Avoid forward commitments you do not control.
- Bypassing managers. A compensation decision communicated by HR email before the manager conversation has happened undermines the manager relationship. Managers should deliver the message, with HR support.
- Treating all increases the same. A 3.4% increase for a top performer and a 3.4% increase for an average performer send the same message. Differentiation within the pool matters, both for retention and for credibility.
How Helios HR can help
A compensation philosophy that your people can see and understand before the review cycle starts changes what is possible in the room. Helios HR works with mid-sized organizations to build pay frameworks and prepare the managers who deliver them:
- HR consulting to assess your current compensation communication approach
- Strategic HR services to build or rebuild your compensation philosophy
- Training and development to prepare managers for difficult compensation conversations
Contact Helios HR to start the conversation.
FAQ
How do I communicate a salary increase to an employee?
Schedule a private meeting before the official review. Deliver the number and rationale clearly, anchor the explanation to your compensation philosophy, and leave time for questions. Follow up in writing with a brief summary of the outcome and any next steps. The goal is clarity and a documented record.
What do I say to an employee who receives no raise?
State the outcome directly: "Your salary will remain the same this cycle." Explain the constraint, whether budget, performance, or both, and tie it to the compensation framework. Offer a concrete next step so the conversation ends with something actionable. A mid-year review date or a development commitment both work.
How do I explain a low raise when I know the employee is underpaid?
Be honest about the gap. Saying "we recognize this is below market for your role and we are working to address it" is more credible than treating the increase as adequate. Pair it with a specific timeline for addressing the gap, not a general assurance.
What should a compensation philosophy include?
At minimum: how pay is determined, what data sets the pay bands, how performance and tenure are weighted, and how the budget process works. It does not need to publish exact ranges for every role, but it should be specific enough that a manager can explain a pay decision by referencing it.
How does pay transparency affect the low-raise conversation?
When salary ranges are posted and your people can legally discuss wages, the review conversation happens in a public information context. A manager who cannot reference a clear pay framework will face follow-up questions they cannot answer. Pay transparency makes upstream compensation philosophy work more important, not less.
Can non-cash benefits offset a low salary increase?
Yes, if they are specific and valued. A funded development opportunity, additional flexibility, or an accelerated review date all carry real value. Specificity is the difference: name the benefit, the value, and the timeline. Generic assurances do not land the same way.
Related resources
WorldatWork: WTW Poll Reflects 2026 Salary Budget Stability: 3.4% Increases Planned
Jackson Lewis: Navigating 2026 Pay Transparency Laws and Employer Obligations
Payscale: 2025-2026 Salary Budget Survey