Compensation trends in India continue to reflect a phase of normalization and prudent workforce planning with overall salary increments projected at 9.1% in 2026, as per EY Future of Pay report. In its fourth edition, the report captures compensation and attrition trends across sectors and reflects how Indian employers are designing pay, performance, and total rewards. It also points towards sharper performance differentiation, rising AI skill premiums, and moderated attrition amid economic normalization.

Top performing sectors and attrition trends

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

GCCs top performing in terms of estimated salary increase in 2026, followed by financial services and e-commerce
Skills are becoming the new currency of pay, with premiums rising 30-40% for AI, ML, cybersecurity, and cloud capabilities.
Performance-based pay differentiation is driving pay decisions, with top performers earning up to 1.6x more through targeted rewards.

Attrition trends indicate a gradual normalization in the workforce market, as overall attrition declined to 16.4% in 2025 from 17.5% in 2024. Notably, 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%, reinforcing their growing stability.

Commenting on the report findings, Abhishek Sen, Partner and Leader, Total Rewards, HR Technology and Learning, People Consulting, EY India, “We are at a turning point in how organizations 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. 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. As economic growth stabilizes and workforce expectations evolve, the Future of Pay Survey 2025–26 will help leaders navigate this shift with grounded, actionable insights.”

Total rewards reimagined in an AI-driven workplace

As AI adoption accelerates across sectors, compensation models are being recalibrated to better reflect productivity, skill application, and measurable business impact. Between 50–60% of large organizations now use analytics in compensation planning, making data-driven decisions a core part of rewards strategy. At the same time, the use of AI across rewards and learning functions has tripled over the past two to three years, signalling a clear shift toward more intelligent and responsive people systems.

Also read – From Human Capital to Workforce Architecture : Preeti Ahuja

Skills-based and variable pay gains momentum

India’s compensation landscape is steadily shifting from role-based to skills-based models. 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 organizations adopting them, especially in sales-driven roles. Around 35% of large organizations 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

Organizations 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 trends

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. At the same time, Union Budget 2026 further reinforces workforce competitiveness through tax stability, skilling investments, digital infrastructure incentives, and sustained public capital expenditure.

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