Abhishek Sen
NEW DELHI: India’s new Labour Codes are prompting organisations to reassess wage structures and statutory obligations, highlighting the impact of these codes on wages and compliance, according to the EY Future of Pay 2026 report.
As the effects of the Labour Codes become clearer, organisations are conducting cost modelling exercises, upgrading payroll systems and strengthening governance frameworks. Investments in modern HR technology platforms are accelerating to facilitate compliance, efficiency and improved workforce visibility.
At the same time, the Union Budget 2026 reinforces workforce competitiveness through tax stability, investments in skilling, incentives for digital infrastructure and sustained public capital expenditure.
Across boardrooms in 2026, one theme is becoming impossible to ignore: the forces shaping compensation have shifted — deeply and permanently. India Inc. is entering 2026 with steady salary budgets, and the salary increase outlook for 2026 across key sectors reflects stabilisation.
Overall salary increases are projected at 9.1 per cent, in line with emerging compensation trends, following two years of recalibration and cost discipline, as per the report.
Indian employers are redesigning their total rewards strategy, pointing toward sharper performance differentiation, rising AI skill premiums and moderated attrition amid economic normalisation. The conversation is no longer about uniform increments but about targeted investment and measurable returns.
Why pay is changing
As analytics and AI adoption accelerate, organisations are moving from traditional models to evidence-based, transparent and capability-driven decisions. Rather than distributing pay evenly, leaders are embracing pay-for-performance and enabling pay differentiation through variable pay and performance metrics.
Intent, not inertia, is guiding how reward capital is deployed. This marks a defining moment in the future of pay in India, where organisations increasingly anchor decisions in rewards analytics and data-backed workforce insights.
Industry dynamics: Where pay is accelerating and where it is stabilising
Beneath the national average, sector trajectories tell a nuanced story shaped by GCC pay trends and digital transformation priorities.
GCCs continue to exhibit the highest salary momentum at 10.4 per cent, powered by global demand and digital specialisation.
Financial services follow closely with salary projections around 10 per cent, driven by regulatory, risk and platform modernisation talent needs.
E-Commerce, at 9.9 per cent, rounds out the top-performing sectors, signalling that technology and e-commerce are normalising, with a sharper focus on productivity and sustainable growth.
Skills-led pay: Where the real shifts are happening
Close to half of surveyed organisations report transitioning to skills-based pay models, reflecting the rise of structured skills-based pay frameworks and premiums for AI and digital roles. This shift signals that capabilities are evolving faster than job descriptions.
Variable pay is rising to 16.1 per cent of fixed compensation in 2025, reflecting a steady shift towards at‑risk structures that link earnings to productivity, adoption and strategic impact.
Long-term incentives have become essential for retaining high‑impact talent. Employee stock ownership plan (ESOP) adoption has risen to roughly 78 per cent, and more organisations now operate multiple long-term incentive (LTI) plans to balance retention, ownership and performance alignment.
Time-bound allowances and differentiated long-term incentives are becoming preferred mechanisms to attract and retain critical digital and AI-led skills without permanently inflating fixed pay, representing a more deliberate approach to attrition and retention management.
Stabilisation of talent movement
Attrition is gradually normalising, declining to 16.4 per cent in 2025, yet voluntary exits still exceed 80 per cent. Even in a cooled market, employees continue to make intentional choices about their careers, prioritising growth, flexibility and cultures that feel fair and inclusive. Leaders are responding with stronger internal mobility, clearer career paths and targeted retention levers that balance cost discipline with capability preservation.
Total rewards reimagined: Flexibility and personalisation are anchoring experiences.
The EY Future of Pay report suggests that hybrid work is now the operating baseline for 52 per cent of organisations, but execution gaps persist – from productivity expectations to perceived fairness.
At the same time, the benefits landscape is diversifying. Personalised, life‑stage‑aware benefits – such as mental health support, financial wellbeing and inclusive healthcare – are reshaping the employee value equation.
Employees today evaluate organisations not only by their pay but also by the experience, balance and support embedded in the broader rewards ecosystem.
| 92 per cent | 78 per cent | 3-4x | 65 per cent | 2.3x |
|---|---|---|---|---|
| Employers offering mental health support | Employees prefer personalized benefits | Wellness program ROI reported | Employers offering flexible benefits | Higher satisfaction with flexible benefits |
Looking ahead: Pay becomes strategic
2026 challenges leaders to rethink compensation not as a cost but as capital, deployed deliberately to build capability, inspire performance and shape culture. The organisations that lead will be those that treat rewards as a strategic system: transparent in design, dynamic in execution and deeply aligned with purpose and long‑term value.
- India’s salary increment trends for 2026 indicate that increases are projected to stabilise around 9.1 per cent.
- Companies are shifting from broad adjustments to more deliberate, skills-led and performance-linked pay.
- Attrition continues to normalize at 16.4 per cent as employers redesign rewards with greater precision, pay transparency and equity.
