India’s 2026 salary increases to reward skills over seniority: EY

India Inc is set to roll out an average 9.1% salary increment in 2026, but the more significant shift lies in how pay is determined, according to EY’s Future of Pay 2026 report.

The consultancy said compensation models are moving decisively away from tenure-based increases towards skills-led and performance-driven frameworks, meaning earnings will increasingly depend on capabilities rather than years of service.

Global Capability Centres (GCCs) are projected to lead pay growth, with average increments of 10.4% in 2026. Financial services firms are expected to offer 10%, followed by e-commerce at 9.9% and lifesciences and pharmaceuticals at 9.7%.

Attrition has moderated across sectors. Overall employee turnover fell to 16.4% in 2025, down from 17.5% in 2024. GCCs again stand out, reporting lower attrition at 14.1%, compared with 24% in financial services and 20.5% in hi-tech and IT.

The biggest structural change is the rise of skill-based pay. AI, generative AI, machine learning, cybersecurity and cloud skills now command 30–40% pay premiums, the report said. Nearly half of organisations surveyed — 45–50% — are shifting towards skill-based compensation models.

Variable pay is also increasing. It now accounts for 16.1% of fixed pay, up from 14.8% last year. The gap between high and average performers has widened, with top talent earning 120–150% of target payouts, compared with 60–80% for average performers.

Abhishek Sen, Partner and Leader, Total Rewards, HR Technology and Learning at EY India, said companies are entering a more “precision-driven” era of compensation. “The future of pay in India is no longer defined by the size of the annual increment alone,” he said. “It is increasingly about deciding which skills to invest in and which outcomes to reward.”

Quarterly variable pay cycles are gaining traction, particularly in sales-led roles, with 28% of organisations adopting them. Around 35% of large companies now link 5–15% of leadership variable pay to ESG metrics, while 65% of BFSI firms have introduced two- to three-year clawback provisions on payouts.

Long-term incentives are also evolving. Approximately 78% of companies now offer employee stock ownership plans (ESOPs), up from 71% a year ago. Around 30% run multiple long-term incentive plans simultaneously. In listed firms, nearly 75% of NSE 200 companies offer LTIs as part of executive compensation.

Median CEO compensation in Nifty 200 companies has risen to ₹7–9 crore, up 12–15% year-on-year. On average, only 25–30% of CEO pay is fixed, with the remainder tied to short- and long-term performance incentives.

The data suggests the era of broad-based increments is fading. Employers are differentiating more sharply between high-impact talent and average performers, while placing greater weight on scarce digital and AI capabilities.

For employees and jobseekers, the message is clear: upskilling in advanced digital competencies may carry greater financial upside than tenure alone. For employers, the challenge will be balancing competitiveness with sustainability in a more data-driven and differentiated pay landscape.