Pay hikes ease to 9.1% in 2026 as firms focus on skill-based rewards: EY report

Overall salary increments across India Inc are projected at 9.1% in 2026, compared to 9.3% in 2025, reflecting sustained cost discipline and a greater normalisation of salary budgets, the EY Future of Pay report has revealed.

Global Capability Centers (GCCs) are set to lead salary growth in 2026 with projected increments of 10.4%, on the back of sustained global demand and investment in specialised digital capabilities. Financial Services follows at around 10%, with E-Commerce at 9.9% and Lifesciences and Pharmaceuticals at 9.7%, rounding out the top-performing sectors.

Attrition trends indicate a gradual normalisation in the workforce market, as overall attrition declined to 16.4% in 2025 from 17.5% in 2024. Over 80% of exits remain voluntary, suggesting talent movement continues to be opportunity-driven rather than restructuring-led.


Financial Services recorded the highest attrition at 24%, particularly across sales, relationship management, and digital roles. Professional Services stood at 21.3%, followed by Hi-Tech and IT at 20.5%. In contrast, GCCs reported relatively lower attrition at 14.1%.

Abhishek Sen, Partner and Leader, Total Rewards, HR Technology and Learning, People Consulting, EY India said in a statement: "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. Rewards strategies are becoming more deliberate, with sharper differentiation and better use of data to guide decisions. 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."

Skills-based and variable pay gains ground
Nearly half (45-50%) of surveyed organizations are shifting to skill-based pay frameworks. Further, emerging tech roles – such as AI, generative AI, machine learning, engineering – can command up to 40% skill base premium.

At the same time, average variable pay as a percentage of fixed pay increased to 16.1% in 2025, up from 14.8% in 2024. The gap between high and average performers widened, with top talent earning 120–150% of target payouts while average performers received 60–80%, sharpening pay-for-performance outcomes.

Quarterly variable pay cycles also gained traction, with nearly 28% of organisations adopting them, especially in sales-driven roles. Around 35% of large organisations now link 5–15% of leadership variable pay to ESG metrics. Clawback provisions tightened further, with approximately 65% of BFSI organizations implementing two- to three-year post-payout clawback periods.

Strategic use of LTIPs for talent retention
Organisations are strategically reshaping their long-term incentive plans (LTIPs) to better balance talent retention, performance alignment, and long-term wealth creation. Around 30% of companies now run two or more LTI plans in parallel. ESOPs continue to be the most prevalent instrument, with adoption rising to approximately 78% in 2025 from about 71% in 2024.

With nearly 75% of NSE 200 companies offering LTIs, these plans have become a standard component of CEO compensation, particularly within listed entities. At the same time, GCCs and technology-led organizations are broadening LTI eligibility beyond leadership teams to include individual contributors with critical and scarce skills.

Executive compensation:
The report reveals that median CEO compensation in Nifty 200 companies has reached ₹7–9 crore in 2025, reflecting a 12–15% year-on-year increase. On average, 25–30% of total CEO pay is fixed, while short-term incentives contribute another 25–30%, and long-term incentives account for 45–50%, emphasizing performance-linked compensation. COOs and CFOs emerged as the highest-paid roles after CEOs. 40–45% of CEO transitions over the last 5 years have been internal promotions, signalling a preference for homegrown leadership talent.

Regulatory shifts reshape pay architecture
India’s new Labour Codes are prompting organizations to reassess wage structures and statutory obligations. Organizations are conducting cost modeling exercises, upgrading payroll systems, and preparing structured communication strategies to manage employee impact.