Most large Canadian employers plan to keep salary increase budgets for 2026 at 2025 levels, even as workers and mortgage borrowers continue to grapple with elevated interest rates and stubborn inflation.
According to Mercer’s October 2025 QuickPulse CA Compensation Planning Survey of more than 460 organizations, companies expected to hold average merit raises at 3.0% and total salary increases – including promotions, cost-of-living and other adjustments – at 3.3% next year, matching what they delivered in 2025.
Those projections point to only modest income growth for households already squeezed by higher mortgage payments and renewal risk.
Employers in consumer goods, non‑manufacturing and energy project average total increases below the 3.3% national benchmark, while chemicals and high‑tech organizations expect to come in higher, at 4.0% and 3.8% respectively.
“Despite lingering uncertainty in the Canadian economy, companies were still spending money to attract and retain employees,” said Elizabeth English, senior principal in Mercer Canada’s career products business.
“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.”
At the same time, 66% of organizations said the broader economy would have a moderate or significant impact on compensation decisions in 2026, and 80% indicated they would distribute salary increase budgets equally across the organization rather than tilt them toward scarce skills or hard‑to‑fill roles.
Promotion activity also looks set to slow, with employers planning to promote about 8.7% of their workforce in 2026, down from 9.8% in 2025, with average promotional bumps of 9%.
AI and automation, meanwhile, appeared to have had limited impact on hiring and pay decisions so far. Only 1% of respondents cited AI as a reason for reduced hiring, and just 3% said they were proactively planning headcount changes tied to AI.
“While AI was changing the way many employees and companies worked, there was still a critical need for human beings to use the tools and provide their judgment,” said Teresa Palandra, Mercer’s Canada president.
“Most companies were using AI to help employees be more productive, rather than replace people all together, which explained the limited impact of AI on compensation and hiring decisions so far.”
For mortgage professionals, the flat pay picture lands against a backdrop of sticky inflation and a higher‑for‑longer rate environment. Market participants recently expected inflation to remain above 2% through 2025 and 2026, drawing on Bank of Canada surveys.
In a separate analysis, Desjardins noted that the Bank of Canada is expected to hold its policy rate steady for an extended period as it waits for further progress on core inflation, underscoring the prospect of prolonged strain on indebted households.
CMP
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