As appraisal season approaches, conversations about pay raises, promotions and performance bonuses are returning to office halls as companies reevaluate compensation strategies.Companies are set to roll out an average salary hike of 9.1 per cent in 2026, signaling a shift towards skill-based pay structures rather than uniform annual increases, according to a report, PTI reported.
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Compensation strategies are increasingly being redesigned around specialized capabilities, productivity outcomes and long-term retention priorities as companies recalibrate workforce investments, the fourth edition of the EY Future of Pay report said.Global Capability Centers (GCCs) are expected to drive salary growth with projected increases of 10.4%, reflecting continued global demand for specialized digital skills. Financial services companies are likely to follow with increases of around 10 percent, while e-commerce companies may see increases of 9.9 percent and life sciences and pharmaceuticals 9.7 percent, the report noted.The findings are based on inputs from 178 companies across 16 sectors in India.
Attrition stabilizes as recruitment pressures ease
The report noted that attrition levels are gradually stabilizing, falling to 16.4 percent in 2025 from 17.5 percent in 2024, with more than 80 percent of exits remaining voluntary, suggesting that job changes are still opportunity-driven rather than restructuring-led.Financial services had the highest attrition at 24 percent, particularly in sales, relationship management and digital roles.
Followed by professional services at 21.3 percent, while high technology and information technology reached 20.5 percent. The Gulf Cooperation Council countries recorded a relative decline in the attrition rate of 14.1 percent, which confirms the increasing stability of the workforce in this sector.“We are at a turning point in how organizations think about investing in their people,” said Abhishek Sen, partner and leader, EY India, HR technology, learning and people consulting firm Total Rewards. “The future of pay in India is no longer defined by the size of the annual raise alone. It is increasingly about precision – deciding which skills to invest in, what outcomes to reward, and how to balance competitiveness and sustainability.”He added that reward strategies are becoming more intentional, with clearer differentiation supported by data-driven decision-making.“At the same time, employees are looking beyond the size of the raise; they want clarity, fairness and consistency in how pay decisions are made,” Sen said.
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As AI adoption accelerates, compensation models are increasingly aligned with measurable business impact and specialized expertise.
Between 50 and 60 percent of large organizations now use analytics in compensation planning, making data-driven pay decisions central to their rewards strategy.Nearly 45 to 50 per cent of the organizations surveyed are shifting towards skill-based pay frameworks, representing a structural change in the compensation landscape in India.The report added that emerging technology roles – including AI, generative AI, machine learning and engineering – could command a skills premium of up to 40 per cent.Companies are also reshaping long-term incentive plans (LTIPs) to boost employee retention and align compensation with performance. About 30 percent of companies now run two or more LTI plans simultaneously, while ESOP adoption rose to nearly 78 percent in 2025, up from about 71 percent in 2024.Nearly 75 per cent of NSE 200 companies now offer LTI incidents, making it a standard component of CEO compensation, especially in listed companies.The average pay of CEOs in the Nifty 200 reached Rs 7-9 lakh crore in 2025, reflecting a 12-15 per cent increase year-on-year. On average, 25 to 30 percent of a CEO’s compensation is fixed pay, another 25 to 30 percent comes from short-term incentives, while 45 to 50 percent is tied to long-term incentives.COOs and CFOs emerged as the highest-paid leadership roles, the report said.The study also noted that India’s new labor laws are prompting organizations to re-evaluate pay structures, update payroll systems and conduct cost modeling exercises to prepare for compliance changes.