Pay reviews in 2026 – balancing budgetary pressures and employee expectations

Robert Shore: Hello, and welcome to the Brightmine podcast, formerly known as the XpertHR podcast. Brightmine is a leading provider of people data, analytics and insight, offering employment law expertise, comprehensive HR resources and reward data to meet every HR and organisational challenge and opportunity. You can find us any time of the day or night at www.brightmine.com.   ­­­

Hello everyone. My name is Robert Shore, and today our subject is pay awards, and in particular budgetary pressures and employee expectations and how to manage those and bring them together. And today I am delighted to be joined by the senior content manager at Brightmine and rewards specialist, Sheila Atwood. Sheila, hello.

Sheila Attwood: Hi there, Robert.

Robert Shore: First of all then, tell us about the data that we are basing this conversation on. Brightmine, of course, collects a lot of data itself.

Sheila Attwood: It does, yes. So the particular data set we’re talking about here is our company pay awards. So this is the outcome of an annual pay review that happens across all organisations. How those deals come about vary. Some are imposed by employers, some are the result of national agreements, and some are negotiated with a trade union.

Now, Brightmine and its predecessor organisations have been collecting this information for decades. I’ve been involved for about half of that time. And we’ve got a huge data set therefore going back into the early 1980s.

So we collect this information throughout the year. We’re always on the go, always bringing this data in and reviewing it every month. And it is across all sectors of the economy.

Robert Shore: We’re talking in the middle of March, and you have chosen this as the most appropriate date to begin this conversation. Why is this the right time to be having this chat?

Sheila Attwood: So we’re at the beginning-ish of the new calendar year. We’ve had pay awards for a couple of months now, in January and February. And what that’s doing is giving us a bit of an indication of what is going to happen across 2026 as a whole. If I talk to you in January it’s a little bit early and we don’t really have very much data in.

Now, in terms of when organisations make these pay reviews, around a quarter of those that happen in the year are going to take effect in January each year, and about half in April. So we’re kind of in the middle of those two peaks of activity.

The other reason why now is good is that we’ve just completed our pay forecast research, and alongside the information that we’re already getting in on pay awards we have some forecast data looking ahead towards the rest of the year.

Robert Shore: And of course we publish this on the Brightmine website, don’t we?

Sheila Attwood: We do. So on 18 March, which will be approximately when this podcast comes out, we will have our pay forecast research results published in the survey analysis section of the Brightmine website.

Robert Shore: Yeah, so log on and find the detail there. For now, Sheila, why don’t you set the scene for us?

Sheila Attwood: So we entered 2026 on the back of a fairly stable year in 2025. So, across the last year as a whole we reached a 3% median pay award across all of those deals that we collected. This was much lower than the previous two years. In 2023 we reached a historical high of 6%. That was the highest we’d seen since the early 1990s. Things came down a little bit in 2024 to around 4.5%, and then down in 2025 to 3%.

If we look at how that varied across the economy, in the private sector – both the manufacturing and services – they also were looking at a 3% median pay award last year. And actually, if we break that down into their constituent industries they also had a 3% rise.

Robert Shore: And what about the public sector?

Sheila Attwood: Last year the median increase there was a 3.8% rise. So we did have some pay review bodies making higher pay awards than elsewhere in the economy, but on balance they were actually lower than public sector employees had received the previous year.

Robert Shore: Okay, so that gives us a good, settled picture for last year. This year what patterns are beginning to emerge? Tell us.

Sheila Attwood: So as I said, things are just getting going this year and we have deals in for January and February so far. Amongst those, the median is actually a little bit higher than we saw over last year. So we’re looking at a 3.3% median pay award in the awards that we have to date for this year.

Robert Shore: And what about April? You mentioned that that’s a key point in the year.

Sheila Attwood: That’s right. So yes, so around half of pay awards are going to take effect in April each year. Well it’s still early days there, but we do have some organisations that have already agreed their April pay awards for this year.

So, so far amongst these deals the median award is 3.3%. So that is in line with the deals that we’re currently seeing coming in in January and February but a little bit ahead of that overall forecast that I’ve talked about of a 3% pay rise.

Of course, the sample of April deals is still smaller than we will gather overall. There’s lots more to come in. So we will be watching this closely to see how things pan out as more of those deals become available.

Robert Shore: Okay. So can you share any examples of April pay awards that you have?

Sheila Attwood: I can do. So just a point to note here, Robert, is that we do collect the information on an anonymous basis so I can’t name individual organisations who have shared that data with us. However, a useful point for a plug – if your organisations listening would like to do so, our research is open to all, not just those people who subscribe to Brightmine, and we will share a copy of our latest analysis with you if you share that information with us.

Robert Shore: And I can put a link to that in the show notes to this programme…

Sheila Attwood: Brilliant.

Robert Shore: …so that people can find that readily.

Sheila Attwood: Brilliant. Thank you, Robert. So, if we look at some of the early public sector deals that I can talk about, some of these have already been agreed.

So if we look at MPs, they are going to receive a 5% increase in April, made up of a 3.5% cost-of-living rise and a 1.5% benchmark increase. That is a little bit higher than we’ve seen MPs receive over the last few years.

Elsewhere, the NHS Agenda for Change pay review body has actually agreed an April deal ahead of April for the first time in six years. So nurses, midwives, paramedics and other healthcare professionals are going to have a 3.3% increase from April this year.

Also, if we look to local government employees in Scotland, they’re going to have a 3.5% increase in April. So some quite strong deals there in the public sector.

Robert Shore: What about other sectors? What do we know about them?

Sheila Attwood: Well, one of the sectors that we do have represented in our April data already is the high street retailers. Over the past few years some of them have had some quite large increases to basic pay levels, especially amongst the supermarkets who tend to be competing on their basic pay levels. So a lot of them are looking to move above the national living wage rate, which of course increases to £12.71 an hour from April. And this competing with each other means that actually we’ve seen a lot of large retailers make two pay rises in any given year. So some of those higher deals in April are coming from those high street retailers.

Robert Shore: Ah, that is interesting, isn’t it? What about everybody else?

Sheila Attwood: So this is probably a good point to bring in our latest research. So our survey that was conducted in January and February of this year asked organisations who hadn’t yet settled their pay review to 2026 to give us a forecast of where they think this might land. I will just say in terms of sample we’ve talked about the whole economy up until this point. This research just covers the private sector because of those different arrangements that are in the public sector. We don’t include them in this research.

So this research gives us an indication of where organisations are looking to pitch their pay reviews over 2026.

Robert Shore: So that’s looking at the whole year. What’s the outlook?

Sheila Attwood: What our research is showing is that organisations do expect a more mooted pattern compared to what we’re seeing at the moment from some of the early data in 2026.

So for the most part organisations are looking to make pay rises, not pay freezes. Toughly around 5% of organisations think they may have a pay freeze; the rest will award an increase to employees. And for the most part organisations think that probably their pay award in 2026 is going to be at the same level as last year. That was predicted by around half of our survey respondents, and there’s an even split amongst the remainder of those looking perhaps at a higher increase or a lower one.

Robert Shore: You’ve set the scene nicely there. Can you put a number on it?

Sheila Attwood: I can now, Robert, yes. So our research shows that organisations are looking at a 3% median pay award over 2026 as a whole. If we look at the middle half of those predictions, they all fall between 3% and 3.9%. So quite tightly bunched around that median figure.

Robert Shore: Can you break that down for us by sector?

Sheila Attwood: I can, yes. So in the manufacturing and production sector 3% also is the median figure, but the middle half of pay awards are expected to be between 3 and 3.5%. So really tightly bunched.

In the private sector services arm of the private sector we’re also looking at a 3% median, half of pay awards expected to fall between 3 and 4%.

Not-for-profit also looking at 3% rise. Half of the awards there expected to fall between 2.5% and 3.7%, so a slightly lower range amongst not-for-profit organisations.

What is interesting amongst all of this information is that lower quartile figure is often the same as the median, and that tells us that very few organisations are actually looking at a pay deal lower than 3%.

 If I go to the other end of the range, I think around less than 10% of organisations are looking at a pay award of 5% or more. So whilst overall the picture is the same as last year, they are tightly bunched and we’re not looking at very many outliers away from those median and interquartile range figures.

Robert Shore: Let’s have a look at the causes here. What’s driving organisations to arrive at these figures?

Sheila Attwood: Well as you can imagine, in any given year when organisations are looking at setting their pay reviews, there’s lots of factors pulling organisations in opposite directions. So we do ask a question around, ‘What the key upward influences that are going to put upward pressure on the value of pay awards and what are the downward ones?’

So, probably as expected, upward pressures over the coming year include inflation, what other organisations in the same industry are paying their employees, and then also employee expectations.

Key downward influences: affordability of what the organisation can pay is a key downward influence, alongside the April 2025 national insurance contribution increases for organisations, as well as kind of their performance and how that plays into what budgets are available.

A really good example of the challenge that organisations face is when we asked organisations about these factors, 7 in 10 of those who said inflation will be an upward pressure also then said that affordability would be a downward pressure. So many organisations being pulled in different directions in terms of where they need to land on the budget to secure the pay review that is going to meet employee expectations, as well as kind of the finance teams’ budgets.  

Robert Shore: So we said at the outset that the theme of this podcast would be trying to balance budgetary pressures with employee expectations. So let’s go to the million-dollar question. Is this going to meet employee expectations?

Sheila Attwood: On balance I would say no, but that’s definitely not the case for everybody. A lot of organisations have told us that they will meet employee expectations, and that may not be that employees are receiving what they want to receive but these organisations have done quite a lot of work in explaining to employees why they’ve reached the figure they have.

So when we looked in more detail at what organisations were telling us, there’s two key approaches here that organisations are putting in place to try and make sure that they are meeting this challenge head-on.

So firstly, looking at transparency and communication. So making sure, like I just said, that organisations are explaining the position of the business to the workforce, and that does help them to manage those expectations. So employees know if the business isn’t doing so well not to expect a huge increase.

So lots around communication. Being transparent not just at the end of the year when the pay review is coming around, but throughout the course of the year, making sure that employees are prepared for what is coming in terms of the pay review.

The other thing that organisations are doing is taking the opportunity of the annual pay review to have a bit of a focus on their benefits packages and looking at the total reward offering that they give to their workforce.

So a couple of organisations have told us that they plan to launch new benefits alongside the announcement of the annual pay award this year. Some are looking at other alternatives to financial awards, so things like additional leave and flexibility, and others still are mentioning things around wellbeing and learning opportunities, really recognising that pay is only one part of what employees value.

Robert Shore: So Sheila, you’ve been monitoring pay settlement levels now for more than 26 years. What’s your take on how organisations are managing this year?

Sheila Attwood: Well, I think in terms of the data that we’re seeing so far we have got a little bit of an increase in pay award levels in the first deals of this year compared to last year. I don’t think with the samples that we have so far that is indicative of how the whole year is going to play out. So I do expect pay award levels at a whole economy level to come down closer to that 3% forecast that we have for the year alongside that 3% median that we saw from last year.

Organisations do have a challenge on their hands in terms of the wider economy as well as meeting those employee expectations, and there’s factors outside of their control that are playing on this as well. So clearly the world economic situation is in a little bit of flux at the moment. That may well have an impact on what organisations can afford to pay. The labour market is loosening a little bit. That’s likely to continue. That puts employers in a slightly stronger position to kind of keep back on their pay awards in some level.

I think it’s also worth reiterating that point I made earlier about both the lower quartile and the median sitting at 3% with very few organisations expecting pay awards below this level. And with the upper quartile not much higher at 3.9%, our overall sense really is that pay awards are going to sit comfortably within this range over the coming year.

Robert Shore: Sheila, thank you so much. So I will direct listeners to the Brightmine website and you can contribute to our research whether you’re a subscriber or not, and I’ll put a link to that in the show notes.

 And all that it remains for me to say then is until next time.