[Canada] Majority of employers will keep salaries flat in 2026

New research has revealed that, in 2026, Canadian employers plan to hold base salary increases for merit at three per cent, and total increases at 3.3 per cent, which encompasses all salary increases, including for merit, promotions, cost of living, and other adjustments, Talent Canada reports.

The latest Mercer QuickPulse Canada Compensation Planning Survey of more than 460 Canadian employers showed that these average salary increase projections are the same as those Canadian employers delivered in 2025.

Sixty-six per cent of Canadian organisations reportedly anticipate that the economy will have a moderate to significant impact on compensation decisions in 2026. However, employers remain committed to prioritising skill and talent development (31 per cent), market competitiveness (28 per cent), and compensation adjustments (22 per cent) this coming year.

The data does suggest a disconnect between these priorities and how budgets are allocated. Eighty per cent of employers indicated they would distribute their salary increase budgets equally across the organisation, rather than directing more resources towards high-demand areas or sectors with critical market gaps. 

In addition, employers reportedly plan to promote fewer employees in 2026, around 8.7 per cent of their workforce, down from 9.8 per cent in 2025. The average promotional pay increase is 9 per cent.

“Despite lingering uncertainty in the Canadian economy, companies are still spending money to attract and retain employees,” Elizabeth English - senior principal in Mercer Canada’s career products business - said.

“Companies should consider allocating a higher percentage of their compensation budget increases to areas with skills that are in high demand to help address talent needs.

“With pay transparency legislation coming into effect in Ontario next month, companies based in that province need to allocate part of their compensation budget to address any internal equity concerns, as well as to prioritise skills that are in high demand.”

The survey reportedly found that AI and automation have a limited impact on hiring and compensation decisions. Just one per cent of respondents cited AI and automation as a reason for reduced hiring, while 62 per cent reported no significant change to hiring volumes despite AI adoption over the past 12 months. 

Only three per cent of organisations said they are proactively planning headcount changes related to AI.

“While AI is changing the way many employees and companies work, there is still a critical need for human beings to use the tools and provide their judgment,” Teresa Palandra - Mercer president - said.

“Most companies are using AI to help employees be more productive, rather than replace people altogether, which explains the limited impact of AI on compensation and hiring decisions so far.”

Source: Talent Canada

(Quotes via original reporting)

New research has revealed that, in 2026, Canadian employers plan to hold base salary increases for merit at three per cent, and total increases at 3.3 per cent, which encompasses all salary increases, including for merit, promotions, cost of living, and other adjustments, Talent Canada reports.

The latest Mercer QuickPulse Canada Compensation Planning Survey of more than 460 Canadian employers showed that these average salary increase projections are the same as those Canadian employers delivered in 2025.

Sixty-six per cent of Canadian organisations reportedly anticipate that the economy will have a moderate to significant impact on compensation decisions in 2026. However, employers remain committed to prioritising skill and talent development (31 per cent), market competitiveness (28 per cent), and compensation adjustments (22 per cent) this coming year.

The data does suggest a disconnect between these priorities and how budgets are allocated. Eighty per cent of employers indicated they would distribute their salary increase budgets equally across the organisation, rather than directing more resources towards high-demand areas or sectors with critical market gaps. 

In addition, employers reportedly plan to promote fewer employees in 2026, around 8.7 per cent of their workforce, down from 9.8 per cent in 2025. The average promotional pay increase is 9 per cent.

“Despite lingering uncertainty in the Canadian economy, companies are still spending money to attract and retain employees,” Elizabeth English - senior principal in Mercer Canada’s career products business - said.

“Companies should consider allocating a higher percentage of their compensation budget increases to areas with skills that are in high demand to help address talent needs.

“With pay transparency legislation coming into effect in Ontario next month, companies based in that province need to allocate part of their compensation budget to address any internal equity concerns, as well as to prioritise skills that are in high demand.”

The survey reportedly found that AI and automation have a limited impact on hiring and compensation decisions. Just one per cent of respondents cited AI and automation as a reason for reduced hiring, while 62 per cent reported no significant change to hiring volumes despite AI adoption over the past 12 months. 

Only three per cent of organisations said they are proactively planning headcount changes related to AI.

“While AI is changing the way many employees and companies work, there is still a critical need for human beings to use the tools and provide their judgment,” Teresa Palandra - Mercer president - said.

“Most companies are using AI to help employees be more productive, rather than replace people altogether, which explains the limited impact of AI on compensation and hiring decisions so far.”

Source: Talent Canada

(Quotes via original reporting)