Both Aon plc and Ernst & Young project salary increments at around 9.1% for 2026. Aon said actual hikes stood at 8.9% in 2025, indicating only a modest increase, while EY described the trend as a stabilisation following two years of recalibration and cost discipline.
Notably, both reports were published before the latest escalation in West Asia, including the US-Israel strikes on Iran, which has since heightened global uncertainty and volatility in energy markets—factors that could reinforce the cautious stance companies are already taking on pay.
Stable averages, uneven outcomes
Aon said real estate and infrastructure and non-banking financial companies (NBFCs) are expected to deliver the highest salary growth in 2026, with sectors such as automotive, engineering and retail also likely to see slightly higher-than-average increases.
These trends reflect employers’ focus on investing in specialised capabilities and customer-facing roles.
EY Future of Pay report’s findings point in a similar direction, with global capability centres (GCCs) leading at 10.4%, followed by financial services and e-commerce, driven by demand for digital and technology talent.
Rising costs vs flat hikes: the real squeeze
The timing of these projections is significant.
Both Aon plc and Ernst & Young flagged caution on compensation even before the latest escalation in West Asia. The conflict has since added to volatility in global energy markets, with higher fuel costs typically feeding into airfares, logistics and the price of everyday goods.
For companies, this raises input costs. For employees, it raises the cost of living.
Financial expert Nitin Kaushik took to X recently saying that once inflation is accounted for, real wage growth in India has remained largely stagnant, with rising living costs offsetting much of the increase.
“On paper, a 9% hike sounds strong, but when you account for rising costs, the middle class has been running on a treadmill… Over the last 10 years, real wage growth in India has averaged a CAGR of just 0.4%,” he said, highlighting that higher percentage hikes in India often start from a lower base and may not significantly improve purchasing power.
Inside boardrooms: caution, discipline, and selectivity
Behind the salary outlook is a broader shift in corporate thinking.
“There is a lot of uncertainty out there,” JPMorgan Chase CEO Jamie Dimon has said, warning of “considerable turbulence” in the global economy.
That caution is increasingly reflected in how companies approach compensation—prioritising flexibility, cost control and targeted investment over broad-based increases.
As Roopank Chaudhary, partner and rewards consulting leader, Talent Solutions for India at Aon, noted, even as India’s macro fundamentals remain supportive, firms are navigating geopolitical uncertainty while building more sustainable compensation strategies and continuing to invest in critical talent.
From uniform hikes to targeted pay
The most significant change is structural.
According to EY, companies are moving away from across-the-board increments toward skills-led and performance-linked pay models, with close to half of organisations transitioning to structured skills-based frameworks.
Compensation decisions are increasingly being driven by data, analytics and measurable outcomes, rather than tenure alone.
Variable pay is also gaining prominence, rising to 16.1% of fixed compensation in 2025, reflecting a shift toward at-risk, performance-linked earnings.
Long-term incentives are becoming more central as well, with around 78% of organisations offering ESOPs, as companies seek to retain high-impact talent without permanently increasing fixed costs.
Attrition cools, hiring becomes more precise
The moderation in salary growth comes alongside a stabilising labour market.
Aon said attrition declined to 16.2% in 2025, down from 17.7% in 2024 and 18.7% in 2023, returning close to pre-pandemic levels.
EY similarly estimated attrition at 16.4%, describing it as a gradual normalisation.
This shift reflects more targeted hiring and stronger focus on retention, internal mobility and workforce stability, enabling companies to align pay more closely with skills and performance.
Policy changes add another layer
Both reports highlight the role of India’s new labour codes in reshaping compensation structures.
Aon said changes such as a standardised definition of wages and expanded social security provisions are prompting companies to reassess and restructure pay, while EY noted organisations are undertaking cost modelling, upgrading payroll systems and strengthening governance frameworks to adapt to the new regulatory environment.
With salary hikes holding near 9% and cost pressures rising amid global uncertainty, the real question for employees in 2026 may not be how much their pay increases but how much of that increase they get to keep.
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