Financial services set for smallest increase in wage budgets

Canadian employers are planning to keep compensation budgets largely unchanged for a third consecutive year, according to a new survey from Marsh Canada.

It signals a measured approach to pay at a time when geopolitical and economic pressures continue to cloud the business outlook, although some industries, including banking and financial services, will be keeping a tighter grip on budgets than some others.

The newly released July 2026 Mercer QuickPulse Canada Compensation Planning Survey from Marsh, (which is transitioning its Mercer people and investments business to the Marsh brand as of September 1, 2026) surveyed more than 470 Canadian organisations.

It found that employers plan, on average, to budget base salary merit increases of 3.0% and total salary increases of 3.2% for 2027. Total increases include merit, promotions, cost-of-living adjustments, and other pay changes.

Those figures are almost identical to what employers reported paying in both 2025 and 2026, when actual merit increases held at 3.0% and total increases came in at 3.3%, pointing to a period of notable stability in Canadian pay planning.

As previously reported, Canadian employers have held steady on 2026 pay plans while shifting toward performance-driven raises, a pattern the latest data suggests is extending into the year ahead.

Industry gaps persist around the national average

The national averages mask meaningful differences across sectors. High Tech leads the country with planned merit increases of 3.3% and total increases of 3.6%, while Retail and Wholesale employers are also budgeting above average at 3.3% for merit and 3.4% for total increases.

At the other end of the scale, Banking and Financial Services is projecting the smallest increases of any sector surveyed (2.7% for merit and 3.0% for total pay) while Consumer Goods and Energy are also tracking below the national merit average, each at 2.9%.

More than half of organisations surveyed (60%) expect economic conditions to have at least a moderate impact on compensation decisions in 2027.

But most are still in the early stages of finalising those plans: as of July 2026, 89% of participating organisations were still gathering data for 2027 salary budgets, while just 6% had proposed budgets to leadership and 5% had already received approval.

Elizabeth English, Senior Talent and Careers Leader at Mercer Canada, said the pattern is consistent with how employers have navigated recent uncertainty.

"Most organisations are still early in the annual planning cycle, and while the current news cycle points to continuing instability, past data shows these projections are likely to be accurate," she said. "Right now, economic uncertainty plays a huge role in employers' compensation strategies, so organisations are planning to make the most of their spending by using data to ensure their spend goes to areas of labour need and where talent risk is high."

Promotions and off-cycle pay enter the compensation mix

The survey points to a broadening of the tools employers are using to manage pay, beyond the traditional annual merit review.

Canadian organisations expect to promote approximately 6.4% of their workforce in 2027, down from 7.6% promoted in 2026, suggesting a more selective approach to advancement.

Promotion rates vary by employee level. Executives are expected to see lower promotion activity (5.4%) compared to non-executive salaried professionals (7.3%), reflecting typical career progression patterns.

Employers are divided on how they structure those decisions: roughly half take a continuous, needs-based approach, moving people up when responsibilities grow, while others tie promotions to key business milestones.

Off-cycle salary adjustments are also becoming a normal feature of compensation management.

Half of Canadian organisations said they have provided or plan to provide off-cycle pay increases in 2026, with a similar pattern anticipated for 2027. However, the governance around those adjustments is inconsistent: among organisations that provide them, 30% track and report on off-cycle increases regularly, while 45% log them in their systems but do not actively monitor or report on them throughout the year.

This trend toward layered compensation strategies reflects what earlier data on Canadian salary increases for 2026 showed that organisations are generally honouring their summer planning projections, even in uncertain conditions.

AI is entering compensation planning, but slowly

Perhaps the most forward-looking finding in the survey concerns the use of artificial intelligence and automation in compensation processes.

Nationally, 57% of organisations report at least some degree of automation in compensation management (43% describe it as partial and 12% as largely automated) but only 2% say they have reached an advanced level of modernisation.

Where AI is most active today is in annual salary increase planning (43% of respondents), market pricing and benchmarking (38%), and job matching and levelling (36%).

Higher-stakes applications such as pay equity analysis and budget optimisation each lag significantly, adopted by just 21% of organisations.

The biggest barriers are not a lack of interest, the survey found, but a lack of the foundations required to use AI effectively: data quality issues (37%), system integration challenges (36%), and limited internal resources (34%) top the list of constraints.

"Just over half of survey respondents are using some degree of AI automation in the compensation process," English added. "But we are still seeing most of them limited to repeatable tasks, rather than more deep integration. The data shows, however, that the interest in doing more with AI exists, but is still constrained by both technical challenges and internal resources."

That trajectory mirrors a broader pattern in the Canadian market. Canadian firms are increasingly preparing for workplaces where AI agents and employees work side by side, but practical implementation is moving more slowly than ambition suggests.