Salary Increases Are Stuck at 3.5% in 2026 — Here's How to Still Get More

Here's the number that defines compensation in 2026: 3.5%.

That's the median merit increase budget for U.S. companies this year, according to SHRM's annual compensation survey. Mercer's data confirms the same figure. It matches what companies actually paid in 2025, and it signals something important: the era of aggressive raises driven by the post-pandemic talent wars is over.

For context, merit increase budgets hit 4.1% in 2023 as companies scrambled to retain employees during the Great Resignation. They've been ticking down ever since — 3.9% in 2024, 3.5% in 2025, and now 3.5% again. The budget has flatlined.

If you're thinking, "3.5% doesn't even keep up with inflation," you're right. With the CPI hovering around 3% in early 2026, a 3.5% raise is essentially a 0.5% real increase. After two or three years of that, you're effectively earning less in purchasing power than when you started.

But here's what most people miss: the 3.5% is a median, not a cap. It's the average across every employee in the company — including people who didn't ask, people who are already at the top of their pay band, and people who are coasting. The money that doesn't go to them has to go somewhere. Your job is to make sure it goes to you.

Here are five strategies for negotiating above the average in a flat-budget year.

1. Shift the Conversation From Merit to Market

Most companies treat raises as two separate buckets: merit increases (the 3.5% pool) and market adjustments (a separate fund for correcting below-market pay). If you frame your request as a merit increase, you're competing for scraps from a predetermined pool. If you frame it as a market correction, you're accessing a completely different budget.

How to do it: Research your market value using Glassdoor, Levels.fyi, Payscale, or Blind. Pull data for your exact title, location, years of experience, and industry. If you're being paid below the median, your ask isn't "I want a raise" — it's "My compensation is below market, and I'd like to discuss an adjustment."

You: "I've been doing some research on market compensation for [title] in [city/industry], and I'm seeing a median range of $X to $Y. My current salary of $Z puts me below the 25th percentile. I'd like to discuss bringing my compensation in line with market."

This reframes the conversation entirely. You're not asking for a favor. You're presenting a data-backed business case for market-rate pay — and most companies have separate budget for exactly this.

2. Time Your Ask Before the Budget Is Set

One of the most common mistakes: waiting for your annual review to ask for a raise. By the time your review happens, the budget has already been allocated. Your manager may support you completely but have nothing left to give.

The window that matters is 4 to 6 weeks before your company's compensation cycle begins. That's when managers submit their recommendations to HR and finance. If your manager is going to fight for above-average money for you, they need your case in hand before they walk into that meeting.

How to find out when your compensation cycle is: Ask HR directly, or ask your manager: "When do compensation decisions typically get finalized? I want to make sure you have everything you need from me before then."

If you've already missed this window, don't wait another year. Ask your manager to put you on the list for a mid-year adjustment. Many companies have a mid-year correction process specifically for retention risks and market realignments — but only for people who ask.

3. Build an Undeniable Case With Numbers

In a year when every manager is being told to stay within 3.5%, the only way to get more is to make your case so strong that saying no feels like a bigger risk than saying yes.

That means quantifying your impact. Not "I did a great job on the product launch" but "The product launch I led generated $2.1M in Q1 revenue, exceeding the target by 40%." Not "I improved the team's efficiency" but "I redesigned the QA workflow, reducing release cycle time from 3 weeks to 8 days."

Build your case document with:

• Revenue impact: Deals closed, pipeline generated, conversion improvements
• Cost savings: Process improvements, tool consolidations, headcount avoided
• Scope expansion: New responsibilities you've taken on beyond your job description
• Team impact: People you've mentored, knowledge you've shared, cross-team projects you've led
• External validation: Client testimonials, partner feedback, industry recognition

The goal is to make your manager's job easy. When they go to their VP and say "I need an exception for this person," your document is what they'll use to justify it.

4. Negotiate the Total Package, Not Just Base Salary

When base salary budgets are locked, smart negotiators expand the conversation. Many companies have significantly more flexibility on non-salary compensation — and in some cases, these alternatives can be worth more than a base increase.

What to negotiate instead of (or in addition to) base salary:

• One-time bonus: Doesn't affect the ongoing salary budget, so managers often have more room here
• Equity or stock options: Especially valuable at companies with strong growth trajectories
• Title promotion: A higher title now sets you up for a bigger salary jump at your next role
• Remote work flexibility: The equivalent of a tax-free raise if it saves you commute time and costs
• Professional development budget: Conference attendance, certifications, courses — these compound over your career
• Extra PTO: Some companies can grant additional vacation days outside the standard policy
• Signing bonus for staying: Frame it as a retention bonus — "I'm committed to staying, but I want to make sure the compensation reflects that commitment"

You: "I understand that base salary budgets are tight this year. I'm flexible on how we get there — would it be possible to look at a one-time bonus, additional equity, or other adjustments to close the gap?"

This shows maturity and gives your manager options. It also signals that you've done your homework and you're serious.

5. Create Urgency Without Threatening to Leave

The employees who get above-average raises share one thing: their managers believe they might leave. You don't need an external offer to create that perception — but you do need to be strategic about it.

Subtle signals that create urgency:

• Mention that recruiters have been reaching out (if true): "I've been getting a lot of inbound interest lately. I'm not actively looking — I want to grow here — but it's made me reflect on where I stand compensation-wise."
• Reference your growing market value: "My skills in [area] have become significantly more valuable over the past year. I want to make sure my compensation keeps pace."
• Set a clear timeline: "I'd like to revisit this in 90 days. Can we agree on what I'd need to demonstrate to earn an adjustment by then?"

The key is to be honest and professional. Bluffing with a fake offer destroys trust. But transparently communicating your market value and your desire to stay — with the implicit message that you know your worth — gives your manager the ammunition they need to advocate for you.

The Real Risk of Accepting 3.5%

Here's the math most people don't do. If you accept the standard 3.5% raise every year for five years:

• Year 1: $100,000 → $103,500
• Year 3: $110,872
• Year 5: $118,769

Now compare that to someone who negotiated an 8% increase in year one and 5% in subsequent years:

• Year 1: $100,000 → $108,000
• Year 3: $119,070
• Year 5: $131,203

That's a $12,434 annual difference by year five — and it compounds for the rest of your career. Over a 20-year career, accepting the default raise instead of negotiating could cost you over $500,000 in cumulative earnings.

The 3.5% average isn't just a number. It's the cost of not asking.

Practice Before You Ask

Every strategy above comes down to a conversation — and conversations about money are some of the hardest you'll have at work. The gap between knowing what to say and actually saying it under pressure is enormous. Your voice shakes. You over-explain. You accept the first "let me think about it" and never follow up.

Conquer Your Boss lets you practice these exact conversations with an AI version of your boss before the real one. Rehearse your market data pitch. Test how to respond when your manager says "there's no budget." Practice negotiating for a bonus when they can't move on base salary. By the time you walk into the real conversation, you'll have already navigated every objection.

The difference between a 3.5% raise and an 8% raise isn't talent. It's preparation.