**The big picture:** U.S. employers project a consistent 3.5% average salary increase budget for 2027, mirroring 2026 actuals, according to Salary.com's latest survey. **Why it matters:** While overall pay budgets remain stable, the effectiveness of traditional merit pay models is being challenged, impacting talent retention and performance incentives. **Between the lines:** - U.S. merit increases are projected at 3.2% for 2027, holding steady for the second consecutive year. - The report highlights that a 3.0% median merit pool offers insufficient financial differentiation to motivate top performers or deter poaching. - Factors beyond performance ratings, such as market rates and critical skills, are increasingly crucial for effective merit pay. **Staffing & HR impact:** HR leaders must re-evaluate compensation strategies beyond basic merit increases to effectively reward top talent and maintain competitiveness, potentially influencing recruiter retention and internal equity. Staffing firms may see increased demand for compensation consulting as clients seek more nuanced pay strategies. **The bottom line:** Stable budgets mask a growing challenge in making pay-for-performance truly impactful, pushing companies to innovate their reward systems.