AI talent commands bigger raises as merit budgets tighten

By AI, Created 10:41 PM UTC, May 26, 2026, /AGP/ – Pave’s 2026 Merit Cycle State of the Union report says companies are keeping raises tight while using equity and targeted pay to reward scarce talent. The data shows AI and machine learning engineers are earning a clear premium, even as median salary increases slow across the broader workforce.

Why it matters: - Companies are making more selective compensation decisions as budget growth stays limited. - AI and technical talent are getting paid more than broader R&D peers, showing where competition for workers is strongest. - Equity is becoming a more important reward for top performers than cash in many compensation programs. - Global companies cannot rely on one uniform merit increase, because pay pressure varies sharply by country.

What happened: - Pave released the third edition of its Merit Cycle State of the Union report, based on its 2026 compensation data. - The report covers how companies allocated raises, promotions and equity in H1 2026. - Median salary increases for eligible employees fell to 3.4%, down from 3.5% in 2025 and 3.6% in 2024. - Employees who received a raise got a median 4.9% increase, down from 5.2% two years earlier. - Total salary increase across all employees held steady at 2.5%. - Promotion rates stayed flat at 8.6%.

The details: - AI and machine learning engineers received a median 4.4% non-promoted raise in H1 2026. - That was 19% above the broader R&D median of 3.7%. - Pave said the premium reflects a shift in how companies compete for technical talent. - The report covers 23 countries, Pave’s broadest geographic scope to date. - India posted the largest median non-promoted raise at 9.9%. - India’s median raise was nearly three times the U.S. rate of 3.6%. - Pave said India’s higher increases were driven by demand for technical talent, ongoing inflation and stronger local competition for AI and engineering workers. - The U.S. median raise was below Canada, Australia, Israel and most of Western Europe. - Pave’s dataset draws on insights from approximately 9,000 integrated customers. - The full report is available as the full report.

Between the lines: - The report suggests pay strategy is shifting from broad-based increases to targeted retention bets. - Companies appear to be using equity and higher-variable rewards to differentiate top performers without lifting overall payroll too much. - The widening gap between U.S. raises and several other markets suggests localized compensation planning is becoming more important.

What’s next: - Companies with global workforces are likely to keep tailoring merit budgets by market rather than applying a single raise percentage. - AI, machine learning and other scarce technical roles are likely to remain the clearest pocket of upward pay pressure. - If budget growth stays muted, compensation design, not just total spend, will remain the main lever for retention.

The bottom line: - In 2026, companies are paying more for the hardest-to-hire talent while keeping overall merit budgets tight.