With appraisal season around the corner, conversations about pay hikes, promotions and performance rewards are returning to office corridors as companies reassess compensation strategies.
Companies are preparing to roll out an average salary hike of 9.1 per cent in 2026, signalling a shift towards skills-based pay structures rather than uniform annual increments, according to a report, as reported PTI.
The fourth edition of the EY Future of Pay report said compensation strategies are increasingly being redesigned around specialised capabilities, productivity outcomes and long-term retention priorities as businesses recalibrate workforce investments.
Global Capability Centres (GCCs) are expected to lead salary growth with projected increments of 10.4 per cent, reflecting sustained global demand for specialised digital skills. Financial services firms are likely to follow with hikes of around 10 per cent, while e-commerce companies may see 9.9 per cent increases and life sciences and pharmaceuticals 9.7 per cent, the report noted.
The findings are based on inputs from 178 companies across 16 sectors in India.
Attrition stabilises as hiring pressures ease
The report indicated that attrition levels are gradually stabilising, declining to 16.4 per cent in 2025 from 17.5 per cent in 2024, with more than 80 per cent of exits remaining voluntary, suggesting job changes continue to be opportunity-driven rather than restructuring-led.
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 the segment.
“We are at a turning point in how organisations 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,” EY India Partner and Leader, Total Rewards, HR Technology and Learning, People Consulting, Abhishek Sen said.
Rewards strategies are becoming more deliberate, with sharper differentiation supported by data-driven decision-making, he added.
“At the same time, employees are looking beyond the size of the increment; they want clarity, fairness, and consistency in how pay decisions are made,” Sen said.
Skills, AI roles drive pay premiums
With artificial intelligence adoption accelerating, compensation models are increasingly aligned with measurable business impact and specialised expertise. Between 50–60 per cent of large organisations now use analytics in compensation planning, making data-led pay decisions central to rewards strategy.
Nearly 45–50 per cent of surveyed organisations are shifting towards skill-based pay frameworks, marking a structural change in India’s compensation landscape.
Emerging technology roles -- including AI, generative AI, machine learning and engineering --can command up to a 40 per cent skill premium, the report added.
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 now 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, the report said.
The study also noted that India’s new Labour Codes are prompting organisations to reassess wage structures, upgrade payroll systems and undertake cost modelling exercises to prepare for compliance changes.
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