A merit budget is a pool, set as a share of total payroll, divided across the business and then allocated by performance rating within a narrow range. Because the top ratings take more than an equal share, the widely quoted average increase sits above what the middle of the workforce actually receives. The figures you can check for free are the Employment Cost Index and the Consumer Price Index; the merit-budget percentages quoted everywhere come from surveys sold to employers.
What the number usually is, and what it means
Merit budgets in most organizations are a few percentage points, distributed across a team. A strong performer receives somewhat more and a weak one somewhat less, but the whole spread is narrow — frequently a percentage point or two between the best and worst outcome.
That is the first thing worth internalizing: the difference between an excellent year and an average one is usually smaller than the difference between two hire dates or two employers.
The comparison that matters
Not the percentage — whether it beat prices. Consumer prices rose about 3.5 per cent in the twelve months to June 2026, so a three per cent increase is a small real cut and a four per cent increase is a half-point real gain.
Over five years the cumulative price rise is about 22.9 per cent. A salary that has not risen by at least that much has fallen in real terms, whatever the annual letters said.
Three things decide your number before performance does
The overall budget, which is set centrally and is the same pot everybody draws from.
Where you sit in your band. Somebody near the top gets less regardless of performance, because the range has a ceiling.
Internal equity. Adjustments to correct compression consume budget that would otherwise be distributed on merit.
Performance is real and it operates within those constraints rather than above them.
Why the letter feels smaller each year
A percentage of a larger base is a bigger absolute number and a smaller felt change. Combined with the early-career catch-up effect ending, that produces the sense of slowing down that almost everybody experiences in the middle of a career.
It is structural rather than personal, and recognizing that is the difference between a considered response and a demoralized one.
The check to run every year
Take your increase and subtract the twelve-month price rise over the same window. Then look at where you sit in the published percentile spread for your occupation in your metro, and whether that position moved.
Those two questions — did I gain in real terms, and did I move relative to the market — are more informative than the percentage, and neither takes more than a few minutes.
What a raise cannot do
Close a gap created at hire. Percentages preserve relative position, so somebody who started below market stays below market through any number of ordinary annual increases.
That requires a market adjustment, a promotion, or a move — three specific mechanisms, none of which is the annual cycle.
How to influence the number you get
Long before the review. Merit budgets are allocated in a meeting where managers argue for their people, and what your manager can say about you is decided by what you did in the preceding months.
Giving them a short written record of what you delivered, a few weeks before that cycle, is the single most effective thing available — not because it is persuasive to you, but because it is what they carry into a room you are not in.
When a small raise is the right answer anyway
If you are already high in your band and above the market median for your occupation and metro, a modest increase is honest rather than mean. The organization has limited room and the data agrees with it.
In that case the productive conversation is about scope and level rather than percentage, because those move you to a different band with a different midpoint.
Common questions
Is there a normal annual raise?
Not a checkable one. The percentages quoted come from private surveys of employers, and the figure that reaches you depends on your rating, your unit, and where your pay already sits in its band.
Why is my increase below the average I read about?
Because averages include the largest awards. Budgets are distributed unevenly so the top ratings are retained, which pulls the average above the middle of the workforce.
What should I compare my raise to?
Inflation first, then what your occupation now pays elsewhere. Beating one and not the other still leaves you drifting behind.
Can my manager simply give me more?
Usually only within an allocation they were handed. Off-cycle adjustments exist and are a separate process, normally needing a second approval.
Where can I check any of this for free?
The Employment Cost Index for how wages are moving, the Consumer Price Index for what an increase has to beat, and published wage data for where your own pay sits.
What is a typical annual raise?
A few percentage points, with the spread between a strong and weak performer usually only a point or two — smaller than the gap between two hire dates.
How do I know if my raise was good?
Compare it against price rises over the same window — about 3.5 per cent in the year to June 2026 — and check whether your percentile position moved.
Can annual raises fix a low starting salary?
No. Percentages preserve relative position, so closing a gap needs a market adjustment, a promotion, or a move.