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Employees are often told that exceptional performance will eventually produce exceptional compensation. The reality is less inspiring. A professional can exceed goals, assume additional responsibilities and earn glowing reviews, yet still receive an annual raise that barely moves beyond the company average.

That is because most annual raises are not calculated solely according to individual value. They are distributed from a predetermined compensation budget that must cover an entire workforce. Even an enthusiastic manager may have limited power to deliver a substantial increase when the organization has allocated only a few percentage points for salary growth.

For 2026, Mercer found that U.S. employers planned average merit increases of 3.2% and total salary increases of 3.5%. WTW reported a similarly restrained average salary budget increase of 3.4%. These numbers help explain why a raise of 10% to 20% is unusual unless an employee changes jobs, earns a meaningful promotion or benefits from a broader compensation adjustment.

A 3% Raise Is Normal. A 5% Raise Is Increasingly Strong.

Within the current compensation environment, an annual raise of approximately 3% is normal. An increase approaching 5% is generally above average, especially when it does not involve a promotion or major change in responsibilities.

The difference may sound minor until it is translated into dollars. An employee earning $80,000 would receive an additional $2,400 from a 3% raise, compared with $4,000 from a 5% increase. At a $100,000 salary, the difference is $3,000 versus $5,000 before taxes and benefit deductions.

A 10% raise would add $10,000 to a $100,000 salary, while a 20% increase would add $20,000. Those jumps are difficult to absorb within an annual merit budget averaging slightly more than 3%. To give one employee a double-digit raise without expanding the overall budget, a company may have to give smaller increases to several other employees. That is one reason organizations reserve large adjustments for promotions, retention risks, internal pay inequities or positions that have fallen significantly below market value.

Even promotion increases are frequently more modest than workers expect. Mercer reported that employers anticipated promoting approximately 9% of their workforce in 2026, down from 10% in 2025. The average planned pay increase connected to a promotion was 8.7%. In other words, even many employees who move into more senior positions may not receive a 10% raise.

Not Every Pay Increase Is the Same

Employees frequently use the word “raise” to describe several different compensation decisions. Understanding the distinction is important because each type of increase is funded and approved differently.

A merit increase rewards an employee’s performance within the same position. A promotional increase recognizes movement into a job with greater responsibility, authority or complexity. A market adjustment corrects compensation that has fallen below what comparable employers are paying. An equity adjustment addresses an internal inconsistency, such as when experienced employees earn less than newer colleagues performing similar work.

There are also organization-wide compensation reviews in which employers rewrite job descriptions, reevaluate salary ranges and compare employees’ actual duties with the work they were originally hired to perform. These reviews can produce larger increases, sometimes implemented in multiple stages, because the objective is not simply to reward a strong year. The company is correcting the underlying compensation structure.

That distinction matters. An employee receiving an 8% adjustment after a companywide compensation analysis did not necessarily receive an unusually generous annual raise. The organization may have determined that the employee’s salary was misaligned with the revised position, external market data or internal salary range.

Why Changing Employers Can Produce a Larger Increase

A current employer generally starts with an employee’s existing salary and calculates an increase from that number. A prospective employer starts with the market rate for the open position, the available hiring budget and the amount necessary to persuade the candidate to accept.

That difference gives external candidates greater leverage. A company may hesitate to approve a $10,000 raise for an existing employee, yet offer that same amount to a replacement because the role cannot be filled at the former salary. The budget assigned to recruiting a new employee may simply be more flexible than the budget allocated to retaining a current one.

The wage data continue to show an advantage for mobility, although the size of that advantage changes with the labor market. In August 2026, the Federal Reserve Bank of Atlanta’s Wage Growth Tracker showed median wage growth of 5% for people changing jobs, compared with 3.6% for those remaining with the same employer. ADP’s separate payroll analysis reported base pay growth of 4.7% for job changers and 3% for job stayers during the same month.

Those figures do not mean every person who changes jobs will receive a large raise. They do show that external movement continues to generate stronger wage growth on average. During more competitive hiring periods, workers with scarce skills or multiple offers may be able to negotiate increases well beyond the overall median.

The Federal Reserve’s household survey provides additional context. Among people who changed jobs in 2024, 52% said their pay and benefits improved, while 62% said the new job was better overall. However, the share reporting improved pay and benefits was down from 63% in 2022. Changing employers can create financial opportunity, but it is not an automatic upgrade.

The Hidden Cost of Small Annual Raises

A modest raise may appear reasonable in isolation but create a significant gap when repeated over several years. A worker earning $80,000 who receives five consecutive 3% raises would earn approximately $92,742 after the fifth increase. That represents cumulative salary growth of about 15.9%.

If the same employee secured a 10% increase through a promotion or job change and then received four annual raises of 3%, the salary would rise to approximately $99,055. The difference would exceed $6,300 a year by the end of the period. That gap could also influence bonuses, retirement contributions, future percentage increases and the salary used to negotiate the employee’s next position.

Inflation makes the calculation even more important. Consumer prices increased 3.4% from August 2025 to August 2026, while nominal average hourly earnings grew 3.1%. As a result, real average hourly earnings declined 0.3%. An employee receiving a 3% raise during that period may have seen a larger paycheck without experiencing greater purchasing power.

This is why a raise should never be evaluated only according to whether the number is positive. Employees should compare it with inflation, market compensation, benefit costs and the growth in their responsibilities. A 4% raise can be meaningful when inflation is 2%, but far less impressive when living costs are increasing at the same or a faster rate.

Pew Research Center found that only 30% of workers were extremely or very satisfied with their pay in 2024, while just 26% expressed that level of satisfaction with their opportunities for promotion. Among workers dissatisfied with their compensation, 80% said their pay had not kept pace with the cost of living, 71% believed they were paid too little for the quality of their work and 70% said their pay was too low for the amount of work they performed.

When Staying Can Still Be the Better Financial Decision

Higher salary growth does not mean employees should change jobs every year. A new role may come with weaker health insurance, a smaller retirement contribution, less paid time off, a longer commute or reduced flexibility. A $10,000 salary increase can quickly lose its appeal if the employee must absorb thousands of dollars in additional medical, childcare or transportation expenses.

Job security also has economic value. An employee who has developed strong internal relationships, accumulated institutional knowledge and established a record of performance may have more influence than a new hire entering an unfamiliar organization. Leaving that position for a higher salary can be worthwhile, but the entire compensation package and risk profile should be evaluated.

Tenure patterns demonstrate that workers make these tradeoffs differently across industries and career stages. The Bureau of Labor Statistics reported that median employee tenure was 3.9 years in January 2024, the lowest level recorded since January 2002. Median tenure was 3.5 years in the private sector and 6.2 years in the public sector. Workers between ages 25 and 34 had median tenure of only 2.7 years, compared with 9.6 years among those ages 55 to 64.

The decision should therefore be strategic rather than emotional. An employee should not leave a healthy workplace for a modest increase that disappears after accounting for benefits and risk. At the same time, loyalty should not become a reason to remain indefinitely in a salary structure that no longer reflects the employee’s skills or contributions.

How to Pursue a Larger Internal Increase

Employees seeking more than the standard annual raise need to build a case that goes beyond being hardworking or dependable. Those qualities matter, but they rarely justify a major exception to an established compensation budget.

The strongest case connects performance to measurable business results. Revenue generated, costs reduced, clients retained, projects accelerated, risks prevented and operational improvements carry more weight than a list of completed duties. An employee should also document how the job has changed, particularly when responsibilities have expanded beyond the original description.

Market data should be used carefully. The objective is not to present the highest salary found online, but to compare positions with similar responsibilities, experience requirements, geographic markets and organizational complexity. The conversation should focus on correcting an identifiable gap between the employee’s role, business impact and current compensation.

Timing also matters. A salary discussion held after the annual budget has been finalized may come too late. Employees should begin the conversation months before compensation decisions are made, ask what would justify advancement and request specific performance expectations in writing.

If the organization cannot increase base salary, other forms of compensation may still be negotiable. A performance bonus, additional paid time off, greater schedule flexibility, professional development funding, enhanced retirement contributions or a formal promotion timeline can add meaningful value. These alternatives should not permanently replace competitive pay, but they can improve the package when salary budgets are temporarily constrained.

Know When the Numbers Are Telling You to Move

An employee should pay attention when responsibilities increase repeatedly but compensation does not, when new hires earn more for comparable work or when management acknowledges a pay gap without establishing a plan to correct it. Another warning sign is receiving exceptional performance ratings alongside raises that remain indistinguishable from those awarded for average performance.

The Federal Reserve found that 58% of employees received a raise or promotion in 2024, while only 21% asked for one. Receiving some form of increase is relatively common. Receiving a transformative increase without a change in role, employer or compensation structure is not.

A double-digit raise should therefore be understood for what it usually represents: a repricing of professional value. That repricing may occur because an employee moves into leadership, acquires a scarce skill, accepts broader accountability, presents credible market evidence or receives an offer from another organization.

A 3% to 5% annual increase can be reasonable within a stable role. But professionals seeking substantially greater income growth cannot rely exclusively on the annual review cycle. They must deliberately pursue advancement, develop higher-value skills, research the market, negotiate at moments of maximum leverage and remain willing to consider external opportunities.

The uncomfortable truth is that companies often pay the largest premium when they need to fill a position, solve a business problem or prevent an essential employee from leaving. Career growth becomes more profitable when professionals stop treating compensation as a reward they will eventually receive and start managing it as a business decision they can actively influence.

Sources

• ADP Research Institute. (2026, September 2). ADP National Employment Report: Private-sector employment increased by 38,000 jobs in August.
• Board of Governors of the Federal Reserve System. (2025). Report on the economic well-being of U.S. households in 2024: Job quality.
• Federal Reserve Bank of Atlanta. (2026, September). Wage Growth Tracker.
• Mercer. (2025, December 9). Most U.S. employers plan to keep 2026 salary increases flat to 2025, according to Mercer.
• Pew Research Center. (2024, December 10). Americans’ job satisfaction in 2024.
• U.S. Bureau of Labor Statistics. (2024, September). Employee tenure in 2024.
• U.S. Bureau of Labor Statistics. (2026, September 11). Real earnings: August 2026.
• WTW. (2026, January 21). Salary budgets have stabilized as employers focus on pay strategy for 2026.