India's 2026 Salary Hike Outlook: 9.1% Average with Skills-Based Pay Shift
As appraisal season approaches, discussions about pay raises, promotions, and performance rewards are resurfacing in office corridors across India. Companies are actively reassessing their compensation strategies, moving away from traditional uniform increments towards more targeted, skills-based pay structures. According to a recent report cited by PTI, organizations are preparing to implement an average salary hike of 9.1 per cent in 2026, signaling a significant transformation in how employee rewards are structured.
Global Capability Centres Lead Salary Growth
The fourth edition of the EY Future of Pay report highlights that compensation strategies are being redesigned to focus on specialized capabilities, productivity outcomes, and long-term retention goals. Global Capability Centres (GCCs) are projected to lead this trend with increments of 10.4 per cent, driven by sustained global demand for digital skills. Financial services firms are expected to follow with hikes around 10 per cent, while e-commerce companies may see 9.9 per cent increases, and life sciences and pharmaceuticals sectors anticipate 9.7 per cent rises.
Attrition Stabilizes as Hiring Pressures Ease
The report, based on inputs from 178 companies across 16 sectors in India, indicates that attrition levels are gradually stabilizing. Attrition declined to 16.4 per cent in 2025 from 17.5 per cent in 2024, with over 80 per cent of exits remaining voluntary, suggesting job changes are opportunity-driven rather than due to restructuring. Financial services recorded the highest attrition at 24 per cent, particularly in sales, relationship management, and digital roles. Professional services followed at 21.3 per cent, while Hi-Tech and IT stood at 20.5 per cent. GCCs reported relatively lower attrition at 14.1 per cent, underscoring growing workforce stability in this segment.
Skills and AI Roles Drive Pay Premiums
With artificial intelligence adoption accelerating, compensation models are increasingly aligned with measurable business impact and specialized expertise. Emerging technology roles, including AI, generative AI, machine learning, and engineering, can command up to a 40 per cent skill premium. Nearly 45–50 per cent of surveyed organizations are shifting towards skill-based pay frameworks, marking a structural change in India's compensation landscape. Between 50–60 per cent of large organizations now use analytics in compensation planning, making data-led pay decisions central to rewards strategy.
Long-Term Incentive Plans and CEO Compensation
Companies are also reshaping long-term incentive plans (LTIPs) to strengthen retention and align compensation with performance. About 30 per cent of firms now run two or more LTI plans simultaneously, while ESOP adoption rose to nearly 78 per cent in 2025, up from about 71 per cent in 2024. Nearly 75 per cent of NSE 200 companies offer LTIs, making them a standard component of CEO compensation, particularly in listed firms. Median CEO pay in Nifty 200 companies reached Rs 7–9 crore in 2025, reflecting a 12–15 per cent year-on-year increase. On average, 25–30 per cent of CEO compensation is fixed pay, another 25–30 per cent comes from short-term incentives, while 45–50 per cent is linked to long-term incentives. COOs and CFOs emerged as the next highest-paid leadership roles.
Expert Insights and Regulatory Impact
Abhishek Sen, EY India Partner and Leader, Total Rewards, HR Technology and Learning, People Consulting, commented, "We are at a turning point in how organizations think about investing in their people. The future of pay in India is no longer defined by the size of the annual increment alone. It is increasingly about precision - deciding which skills to invest in, which outcomes to reward, and how to balance competitiveness with sustainability." He added that rewards strategies are becoming more deliberate, with sharper differentiation supported by data-driven decision-making, and employees seek clarity, fairness, and consistency in pay decisions.
The study also noted that India's new Labour Codes are prompting organizations to reassess wage structures, upgrade payroll systems, and undertake cost modeling exercises to prepare for compliance changes, further influencing the evolving compensation landscape.
