Indian companies are projected to maintain an average salary increase of 9% in 2026, according to recent reports. This steady growth reflects a stable yet cautious economic environment and a moderating talent market. While the overall increment remains consistent with the previous year, companies are increasingly focusing on strategic reward mechanisms, particularly short-term incentives, to attract, retain, and motivate employees.
Mercer's Total Remuneration Survey (TRS), which covered over 1,500 organizations and 8,000 roles, highlights this trend. The survey indicates that organizations are refining their reward structures to align pay with performance, skills acquisition, and deployment. This shift comes as companies balance cost pressures with the need to retain key talent in a competitive job market. Individual performance, an employee's position within the salary range, inflation, and the organization's competitiveness are major factors influencing salary increases.
Several sectors are expected to lead in salary growth. The manufacturing and engineering sector, along with the automotive industry, are projected to offer the highest increases, around 9.5%. Global Capability Centers (GCCs) are also expected to provide substantial hikes, with projections around 9%. Other sectors, including life sciences, automotive, and retail, are projected to offer salary increases of approximately 9.60%. Conversely, the technology sector is showing signs of moderation in salary increases.
The increasing emphasis on short-term incentives, such as bonuses, reflects a focus on near-term performance alignment and cost efficiency. Companies are building transparent, skills-based pay frameworks to support evolving workforce needs, especially in the face of increasing AI and productivity priorities. The implementation of newly approved labor codes is expected to strengthen the social security net and preventive healthcare coverage for employees.
However, some reports suggest a slightly more conservative outlook. One survey projects the average salary increase in 2026 to be 8.9%, compared to 9.1% in the previous cycle. Sectors like IT and e-commerce may experience slower increment growth. Hiring intentions are also becoming more cautious, with the proportion of companies planning to expand their workforce declining from 43% in 2024 to 32% in 2026.
Despite these nuances, the overall sentiment remains cautiously optimistic. Companies are adapting to digital transformation, shifting workforce expectations, and a sharper focus on productivity. They are revisiting the number of employees eligible for increments as a strategy to manage costs, while also exploring broader, more holistic value propositions to differentiate themselves in the talent market. Voluntary attrition rates have hovered in the low to mid-teens in recent years, reinforcing the need for thoughtful retention strategies.
