9% salary hike expected in 2026, but inflation may reduce real gains

India Inc is expected to offer salary hikes of around 9% in 2026, but rising living costs and shifting pay structures may blunt the real impact on employee incomes.

Projections from consulting firms Aon and EY suggest increments will hover near 9.1%, signalling a stabilisation in pay growth after two years of recalibration, as CNBC-TV18 reported. Aon said actual hikes stood at 8.9% in 2025, indicating only a marginal increase in the coming year.

However, the headline number masks a deeper shift underway inside corporate boardrooms.

Pay is becoming more selective, with companies increasingly moving away from uniform increments towards performance-linked and skills-based rewards. According to EY, nearly half of organisations are transitioning to structured frameworks that prioritise critical skills and high performers over across-the-board hikes.

This structural shift is unfolding amid growing macroeconomic uncertainty. Both Aon and EY flagged caution even before the recent escalation in West Asia, which has since added volatility to global energy markets. Higher fuel costs are expected to feed into logistics, travel and everyday expenses—raising the cost of living for employees while increasing input costs for businesses.

The result is a widening gap between nominal pay increases and real income growth.

Financial commentator Nitin Kaushik noted that once inflation is accounted for, wage gains appear far less meaningful. “On paper, a 9% hike sounds strong, but when you account for rising costs, the middle class has been running on a treadmill,” he said, adding that real wage growth in India has averaged just 0.4% annually over the past decade.

Sectoral differences are also becoming more pronounced. Aon expects real estate, infrastructure and NBFCs to lead salary growth, while automotive, engineering and retail sectors may offer slightly higher-than-average increases. EY’s findings show global capability centres (GCCs) leading with projected hikes of 10.4%, driven by demand for digital and technology talent.

At the same time, companies are reshaping compensation structures. Variable pay is rising, accounting for 16.1% of fixed compensation in 2025, while long-term incentives such as ESOPs are becoming more common, with around 78% of organisations offering them.

Attrition trends are also stabilising. Aon reported attrition declining to 16.2% in 2025 from 18.7% in 2023, while EY estimated a similar level at 16.4%, suggesting a more balanced labour market and more targeted hiring strategies.

Regulatory changes are adding another layer of complexity. Revised labour codes and a standardised definition of wages are prompting companies to restructure pay, simplify salary components and strengthen compliance frameworks.

Despite stable headline numbers, the underlying message is clear: salary growth is becoming more disciplined, data-driven and selective.

For employees, the implications are significant. The real question in 2026 may not be how much salaries rise, but how much purchasing power those increases actually deliver.