News to know: August 2026 labor market and pay legislation update

Payscale

Jackson

Gruver

September 3, 2026

min

Compensation is being pulled into more directions and bigger questions. This month, salary budget survey results landed, Wall Street bonuses hit levels that haven’t been seen in years, and CEO pay hit a new records. At the same time, two new pay transparency laws are live . This is what August has signaled for compensation leaders heading into 2027 planning.

Below, we synthesize the latest labor market data, policy developments, and research insights most relevant to compensation leaders.

2027 salary budgets: why ~3.5% doesn’t mean 3.5% for everyone

The salary budget surveys are in, and the consensus is tighter than last year — but not dramatically so. Here’s where the major sources land for 2027:

Payscale: 2027 median and average planned salary budget = 3.5%; 2026 actual average and median = 3.4%.

WorldatWork: both projected 2027 and actual 2026 reported increases average 3.6% and median 3.5%.

Towers Watson (WTW): average U.S. planned increase for 2027 = 3.4%; actual 2026 average = 3.5%.

Gallagher: 2027 forecast = 3.3% to 3.4%; 2026 actual = 3.7% to 3.9% depending on job classification.

Korn Ferry: 2027 forecast = 3.3% average, 3.0% median; 2026 actual = 3.4% average, 3.3% median.

Across these survey results we see a fairly clear normalization of salary budgets. But the budget number isn’t the story — how you use it is. WTW’s data shows that across-the-board raises are declining, with more organizations shifting toward differentiated, performance-based increases. A 3.3% average can mask a wide distribution: strong performers in scarce roles might see 5% or more, while others see 2% or nothing. Organizations doing their planning around a single average figure will miss the actual picture.

The decisions that matter most in a 3.5% budget aren’t about the average. They’re about merit differentiation, compression, critical-skill premiums, promotional increases, geographic and market adjustments, and pay equity. That’s where the conversations will happen this fall.

Payscale’s 2026-2027 Salary Budget Survey gives comp leaders a more granular read than the advisory firm averages, with breakdowns by organization size, industry, and region.

Variable pay is back — and it’s telling comp leaders something

While salary budgets are normalizing at 3.3% to 3.5%, something very different is happening on Wall Street. Johnson Associates, a financial compensation consultancy, projects that equity traders and equity capital markets bankers will see bonuses rise 20% to 30% in 2026. M&A bankers are on track for 15% to 20% increases. The firm is calling 2026 the “Year of the Bank.”

This matters beyond finance. For any organization competing for finance, sales, AI, or other highly mobile talent, a flat 3% to 4% base salary budget looks different when competitors are using variable pay and retention awards aggressively. The Wall Street data is a signal that market-competitive total cash, not just base salary, is a real unit of competition for scarce talent.

Executive pay hit another record

Average S&P 500 CEO compensation rose 21% to $22.8 million in 2025 (excluding Elon Musk), which is the highest average the AFL-CIO has recorded since it began tracking the figure in the 1990s, according to the federation’s annual Paywatch report cited by Reuters

The CEO-to-worker pay ratio widened to 312:1, up from 285:1 in 2024. Driving the increase is a proliferation of large performance-based packages modeled on Elon Musk’s Tesla deal, where stock awards now make up the largest share of executive pay.

That ratio has employee-relations and pay-equity implications that go well beyond the executive suite. At a 312:1 ratio, the gap between what senior leaders earn and what average employees earn is increasingly the subject of employee conversation. The AFL-CIO noted that workers are growing more vocal about compensation inequality.

For comp leaders, this is a governance and communication issue, not just a CEO pay design question.

Pay transparency is becoming a pillar of compensation design

Virginia and Maine’s new laws are live. Virginia requires salary ranges in every job posting — no employer-size threshold — and gives employees a direct right to sue. Maine’s pay transparency law applies to employers with ten or more workers and extends to current employees on request.

Connecticut follows October 1, adding a benefits disclosure requirement that goes further than most existing laws. These aren’t compliance checkbox items. They force organizations to have a real salary range, publicly attached to every role.

Mercer’s 2027 compensation planning survey explicitly includes pay transparency alongside salary structures and promotional increases — a notable shift that treats transparency as part of compensation design, not just an HR compliance requirement.

In 2024, Aon research found that only 51% of employers have conducted an independent pay equity analysis, and of those, 84% found gaps. Only 34% allocated additional funding to address them.

A separate Aon 2026 Pay Transparency Pulse Survey found that only 8% of managers feel “highly ready” for pay transparency conversations, while more than half report low or no readiness.

An August 21 report from HR Brew looked at the first month or so after the EU directive took effect and found that employees are already requesting pay level comparisons.

Now more than ever, comp leaders must shore up their organizational pay transparency policies and ensure there is legally sanctioned justification for any differentiation in pay among similar roles.

AI is becoming a compensation and workforce issue

An anonymous, voluntary, and self-reported Microsoft compensation spreadsheet with nearly 600 employee submissions reviewed by Business Insider showed Cloud + AI employees reporting stock awards as high as $1.4 million. The important story isn’t the exact number, which comes from a self-reported, voluntary dataset. It’s what it reveals about how aggressively AI capability is being priced in the market and the interest employees have in AI skills.

Microsoft is competing for the same AI talent as Meta, Google, OpenAI, and Anthropic. When the market price for a skill is moving that fast, existing job architecture can’t keep up. The real question for comp leaders is whether AI expertise is a new job family, a premium skill, a temporary market adjustment, or something that should be embedded into every role — and each answer leads to a different pay program.

The workforce-planning side of AI is raising equally hard questions. PwC research on financial services found that 42% of leaders have modeled AI’s effect on labor capacity, and nearly 80% expect their workforce to shrink by at least 20% over the next five years — while also expecting to pay more for AI skills and invest in upskilling. For compensation and executive leaders, AI transformation will likely manifest in three key areas: which roles are needed, higher pay for specific capabilities, and more investment in reskilling. Compensation can’t operate independently of those decisions. Which roles disappear, which get redesigned, which skills become premium, and how you price the redesigned job are all simultaneously workforce planning and compensation questions.

There’s also a performance angle worth flagging. The same Microsoft data included self-reported AI usage, with one employee reporting $28,000 in AI usage costs over 28 days and a median of roughly $300. Business Insider found no meaningful relationship in this small sample between AI usage and compensation. But the broader question it raises — should AI adoption become a performance variable? — is going to land on comp teams eventually. If two employees in the same role produce materially different output because one uses AI more effectively, that could eventually affect pay, promotion trajectory, or job level. Organizations that have thought about this in advance will be better positioned than those who haven’t.

One signal on the narrative front: Axios reported that some CEOs are deliberately reframing AI-driven job reductions as workforce transformation rather than displacement. How organizations communicate around AI and workforce change is increasingly an HR ownership question, not just a PR one. A BCG study on the reinvention of the CHRO in the AI era makes the case that HR’s strategic role in AI transformation is far larger than the traditional “HR supports the technology rollout” model.

What this means for compensation leaders

August pulls together a set of themes that are no longer peripheral to compensation strategy. Salary budgets are normalizing, but the work is in how you differentiate within a tighter pool. Variable pay and equity are doing real competitive work in talent markets that base salary budgets alone can’t address. Executive pay disclosure creates employee-relations pressures that will show up in engagement data if it isn’t already. Pay transparency is moving from compliance into compensation architecture. Meanwhile, AI is raising questions about job design, performance measurement, and what skills are actually worth — questions that land squarely on comp and workforce planning teams.

The practical priorities for the next 60 days: finalize your 2027 salary increase budget using the most granular data available for your sector (Payscale’s Salary Budget Survey and Q2 2026 Labor Market and Wage Trends Report are both available now); audit your job library for Virginia, Maine, and Connecticut compliance; assess whether your salary ranges can survive employee scrutiny, not just regulatory review; and get a working answer to the AI skills question before 2027 planning locks in your job architecture.

Compensation events

Payscale’s annual conference, Compference, is coming up in September. Registration is open now. It’s built specifically for comp professionals and covers pay strategy, market data, transparency, and job architecture — the exact set of issues this month’s news keeps circling back to. If you’re building a case for 2027 budget this fall, this is the room to be in.

For other upcoming Payscale events, including webinars and podcasts, visit the events page.