Before Your Best People Look Elsewhere: A Mid-Year Compensation Check

Susan Palé
8/10/2026

If you’re starting to think about year-end raises and bonuses, one number should anchor the conversation: In 2026, wage growth of roughly 3.5% has trailed inflation, which hit 4.2% in May. When pay rises slower than prices, real earnings fall—and that changes how a raise lands.

Here’s the trap. You give a solid 3% increase and feel good about it. But your employee has spent the year watching gasoline, groceries, and rent climb faster than their paycheck. To them, the raise didn’t feel like a reward; it felt like barely holding steady—or falling behind. A pay bump that ignores the cost-of-living squeeze can quietly read as a cut, and that’s the moment your best people start taking recruiter calls.

The market backdrop makes this more urgent, not less. An aging workforce and lower immigration are shrinking the labor supply, which means skilled talent is getting harder and more expensive to find. There are roughly 7.6 million job openings against 7.1 million unemployed workers—close to a one-to-one ratio. Layoffs are down about 40% from last year, so fewer skilled people are on the market to begin with. Losing a strong performer over a compensation misstep is far costlier than getting the raise right the first time.

So, what should employers do between now and January? A few steps worth putting on the calendar:

• Revisit pay now, not in December. Waiting until year-end leaves no room to react if a key employee is already looking.
• Use current market data. Check compensation levels in every market where you operate—salary expectations have shifted, and last year’s benchmarks may already be stale.
• Factor in the real squeeze. Build year-end raises around the cost-of-living pressure employees have felt all year, not just a standard percentage.
• Look beyond base pay. Reassess your bonus, incentive, and commission plans for 2027, and consider a Total Rewards Statement so employees can see the full value of their compensation and benefits—not just the number on their paycheck.

None of this requires guesswork—and VRMA has made sure of it. Our partnership with The Workplace Advisors, our endorsed recruiting, HR, and compensation experts, exists so members walk into decisions like these prepared. Twice a year we bring you their labor market analysis, and their 2026 Mid-Year Labor Market Summary includes a full July-to-December compensation to-do list and current market context to help you make informed calls.

Read the full report here.