Hello, and welcome back to Inc.'s 1 Smart Business Story. Work hard, get a promotion, make more money. For decades this has been the path to workplace success. But because the rules of the workplace are being redefined in real time, employers have begun experimenting with new ways to manage promotions and raises. Companies are trying different things: a title change with no raise, a small “peanut butter” cost of living bump, or an entirely new vesting schedule. One thing is clear—to retain talent, employers need to be transparent about their compensation strategies so that workers can best navigate this new career ladder. 

In this Inc. Premium story, you’ll learn: 

BY KAYLA WEBSTER, STAFF EDITOR

Companies are rethinking their compensation strategy. In this buyer’s market, that’s good news for them. For workers? It’s complicated.

Dominique Fields had every reason to believe she’d receive a promotion. The 32-year-old digital marketing manager in Nashville discussed internal opportunities with her manager multiple times. But with each conversation, she says, “the goal posts moved.” Then, in May 2025, she was laid off.

Fields was caught off guard. She’s not alone. Across industries, workers are finding that the relationship between performance and pay has quietly shifted. Some receive promotions without raises. Others get raises structured in ways that look generous on paper but are harder to pocket. And many, like Fields, are left wondering what they did wrong, or whether the rules simply changed without anyone telling them.

In a new and increasingly complex landscape—shaped by inflation, geopolitical uncertainty, and the rise of AI—employers are rethinking how they reward workers. The strategies vary widely by company size, sector, and financial health, but a clear pattern is emerging: the compensation models that workers long counted on are being restructured, and employees are often the last to know.

“There will be less to go around, but that doesn’t mean people won’t be getting promotions or raises,” says Ruth Thomas, chief compensation strategist at Payscale. “Organizations will just be more discerning in how they award them.”

According to Payscale’s most recent salary survey, employers are budgeting for average pay increases of 3.5 percent in 2026—the same as 2025—and that money won’t be spread evenly. Some companies are doubling down on performance-based raises. Others are swapping permanent salary increases for one-time bonuses. A smaller number are reviving a tactic from the 2008 recession known as peanut butter raises: spreading modest raises across the entire workforce, regardless of performance.

The compensation models that leaders choose to implement are determined by many factors, such as the company’s size and sector. But it’s clear that leaders across industries are being deliberate and cautious about what they commit to and when. 

For both workers and business owners, transparency can go a long way in setting expectations around compensation. “Everybody has a right to ask for a pay increase,” says Payscale’s Thomas, “and everybody has the right to understand, more importantly, how their pay is determined.”

Sean, 30, a healthcare consultant in the D.C. Metro area, found himself in a situation where a lack of clarity turned a promotion into a months-long standoff. When a member of the C-suite told him he was being promoted to senior manager, he was told to expect a call from HR to discuss his raise. That call never came. 

When Sean followed up, HR said they needed to finish their performance cycle first. Months passed, his raise went unquantified, and Sean started taking calls from recruiters. He eventually accepted a new role at $140,000—a significant pay increase—and gave his notice. 

Fields also job-hopped—but she became a solopreneur. Instead of plunging back into an uncertain job market, she launched her own company, DFM Consulting, which helps small Nashville businesses with marketing strategy, social media, and Google visibility. Fields enjoys running her own business but says she’d consider returning to a larger company for the right offer—competitive pay and full benefits, including health insurance she currently lacks. Either way, she plans to keep DFM running on the side.

“It’s just important to build your own thing,” Fields says. “Even when you get your next full-time gig, you have to build your own thing on the side. You can’t just rely on one income.”

While job-switching worked out for Sean, data suggests it’s no longer the guaranteed windfall it once was. Workers who changed jobs saw wages grow 6.4 percent year-over-year in January—tied with November 2025 as the slowest gain for job-hoppers since February 2021. The pay gap between workers who switch and those who stay is now the smallest on record in ADP’s data going back to 2020, a sign that the leverage employees held during the post-pandemic hiring boom has largely evaporated.

“Before making a new hire, management asks whether each additional person you add to the team compounds and creates more value for the company,” says Zuhayeer Musa, co-founder of Levels.fyi, a salary transparency platform. Companies that think this way and have the financial resources to act on it are more likely to promote from within and provide a pay increase.

For now, most workers are staying put anyway—not out of contentment, but caution. Turnover remains low, a reflection of what’s become known as “job hugging”: the reluctance to leave a stable position in an uncertain market. ADP’s Pay Insights, which tracks year-over-year pay changes for more than 26 million private-sector workers each month, shows that pay growth for job-stayers has stabilized, hovering between 4.4 and 4.5 percent annually for the past 10 months. The dynamic is self-reinforcing: the less likely workers are to leave, the less pressure employers feel to offer raises.

Much of what determines a worker’s chances of a raise depends on the sector they’re in. Payscale data shows the strongest wage growth in 2025 was in oil and gas, manufacturing, construction, and engineering. In the second quarter of 2025, the engineering and construction sector reached a market value of $890 billion, a one percent increase year-over-year, according to Deloitte.

Company size also plays a role. Large, established companies—particularly those that have already conducted layoffs—are the least likely to open their wallets, Musa says. When growth stalls, workers become a cost to manage rather than an investment to nurture. Smaller companies and fast-growing startups tend to take the opposite view, hiring deliberately and promoting aggressively to retain the talent they’ve worked to attract.

This compensation shift has been most pronounced in tech. AI-focused companies are among the most generous with promotions and raises, according to Levels.fyi data, but the generosity is concentrated in research, development, product engineering, and design. Operational roles such as human resources, office administration, and project coordination aren’t seeing the same benefits. Education, food and beverage, and hospitality sit at the other end of the spectrum. Workers in these industries face the tightest salary budgets, with the least room for merit-based increases.

Musa says the employees most likely to see meaningful raises will be “the top 5 percent performers.” Payscale’s latest compensation survey shows 48 percent of companies plan to award raises based on performance in 2026 because they “can’t afford to lose their top employees.” But many companies are opting for performance bonuses instead of permanent salary increases, even for their most valuable workers.

For many of the workers who do receive raises, the structure of compensation is changing. Many tech companies have adopted what Musa calls a “front-loaded vesting schedule”—a structure that offers more equity in the early years of employment, then tapers off over time. A four-year equity package might pay out at 40 percent in year one, 30 percent in year two, 20 percent in year three, and just 10 percent in year four. In those final years, performance-based bonuses fill the gap—but only if managers sign off. Google and Amazon are among the companies that have restructured their compensation models along these lines, according to research from Levels.fyi.

For both workers and business owners, transparency can go a long way in setting expectations around compensation. “Everybody has a right to ask for a pay increase,” says Payscale’s Thomas, “and everybody has the right to understand, more importantly, how their pay is determined.”

In 2026, the promotion may still come. The raise that used to come with it may not. Employers are making a calculated bet that titles, equity, and promises of future pay will be enough to keep their best people. Whether that bet pays off depends on how long employees are willing to wait and how clearly companies communicate why they should.