By Amanda Ward

Mercer’s latest read on 2027 pay lands where most of this year’s forecasts have: steady, modest, tight. The firm’s July QuickPulse US Compensation Planning Survey projects merit increases of about 3.2 percent and total salary increases of roughly 3.5 percent for 2027 — essentially flat against this year — in what the firm sums up as a market where “compensation dollars are tight” (Mercer, “US Employers Stick With Moderate Pay Increases for 2027”). Sitting quietly in the same data is a number that deserves more attention than the headline merit figure: promotions. Mercer expects about 8.4 percent of the workforce to be promoted in 2027 — down from 8.6 percent in 2026 and 9.9 percent two years ago. The promotion rate is drifting to a multi-year low at the same time base pay is barely moving.

Those two numbers are usually read separately — one as a merit story, one as a career story. We’d read them together, because together they describe something a lot of compensation teams are about to feel. The two instruments a company has always used to tell an employee “you’re progressing” — the raise and the promotion — are both being rationed at once.

Here’s what we think this means for HR and Total Rewards leaders designing variable comp programs. A promotion was never only money. It was a signal — a public, legible marker that someone had grown, that the organization noticed, and that there was further to go. When you throttle merit and throttle promotions in the same year, you don’t just spend less; you go quiet. The employee who would have gotten a title bump or a real raise still shows up, still delivers, and now hears nothing. In our experience the money part of that gap gets patched quickly — Mercer notes 64 percent of organizations are making or planning off-cycle adjustments — but the signal part almost never does. And the one instrument left standing that can actually carry a signal of progress is the annual bonus.

1. Promotions and merit are being rationed at the same time — and the bonus is the lever that wasn’t.

Look at what 2027 constrains and what it doesn’t. Merit is near inflation. Promotions are at a multi-year low. Both of the levers that historically said “you’re moving up here” are being tightened for reasons that have nothing to do with any individual’s performance. The annual incentive is the conspicuous exception: it’s the one meaningful pay lever a company still fully controls, year to year, with no range maximum and no promotion-budget ceiling capping it. That makes a plain observation unavoidable — in a year when the other engines are throttled, the bonus is doing more of the motivational work than it ever has. The mistake is to keep running it with the attention you’d give the least important part of pay.

2. A promotion was a signal, not just a payment — and the signal is the part no one is replacing.

It’s worth being precise about what a promotion actually did, because the half everyone replaces is the smaller half. Yes, it raised pay. But its real power was informational: it told the employee, their peers, and the market that this person had grown into more. Off-cycle adjustments cover the dollars. They do not cover the message. A quiet mid-year bump to someone’s base says almost nothing — there’s no story attached, no marker of progress, often nothing the employee can even point to as having been earned. If progression used to be communicated through promotions and you’re handing out fewer of them, you have a communication problem, not just a budget one. The bonus is the only annual instrument with enough structure to say something.

3. A bonus that only pays out this year’s numbers can’t tell anyone they’re progressing.

Here’s the catch: most bonus plans aren’t built to signal growth. They’re built to pay a formula on a single year’s results, which means they say roughly the same thing to a steady performer and to someone who stretched into genuinely bigger work — same target, same mechanics, same payout logic. That’s fine when promotions and raises are carrying the progression story. It’s a problem when they’re not. If the bonus is going to absorb the job the promotion used to do, it has to be able to distinguish growth from steady-state — through targets that scale with the scope someone has actually taken on, through goals that recognize a bigger remit, through a design that treats an expanding role as something the plan can see. A plan that pays everyone the same way regardless of trajectory can’t substitute for a signal of progress, because it isn’t sending one.

4. Off-cycle adjustments are the market improvising — and improvisation is expensive.

Sixty-four percent of organizations reaching for off-cycle adjustments is not a sign of a healthy system. It’s the sound of comp teams patching, case by case, a gap the annual cycle can no longer close on its own. We understand the reflex — someone’s a flight risk, the merit matrix came back short, you do what you can in the moment. But an off-cycle raise decided under pressure is a permanent cost added with no goal attached and no plan behind it, and a pile of them is impossible to defend when someone finally asks what they bought. In our experience the organizations spending the most on these one-off fixes are usually the ones whose bonus plan isn’t doing enough. When the planned instrument underperforms, the unplanned spending rises to fill the vacuum. Strengthen the plan and the improvisation gets quieter.

5. If the bonus is carrying the recognition load, it has to be legible enough to carry it.

A promotion is legible by definition — everyone understands what it means. The trouble with asking the bonus to inherit that role is that most bonus plans are the least legible part of pay: the employee knows a number arrived, but not what moved it or what would move it next year. A payment nobody understands cannot replace a promotion nobody’s getting, because the whole value of the signal is that it’s readable. If the plan is now the main way you tell people they’re valued and progressing, it has to clear a bar it was never held to before — the employee should be able to say what the bonus rewards, roughly predict it, and see the line between their work and the result. Legibility stops being a nice-to-have the moment the bonus becomes your primary recognition instrument.

6. Design the bonus like it’s your main motivation tool now — because the data says it is.

Everything above points to one shift in posture. For years the bonus could be the part of pay that ran on autopilot while the real design energy went into merit matrices and promotion frameworks. The 2027 numbers quietly end that arrangement: with merit flat and promotions rationed, the annual incentive is the biggest motivational lever most companies have left, and it deserves the attention the other levers used to get. That means fewer and clearer goals, a payout an employee can forecast and aim at across the year, targets that move with the scope someone actually carries, and a visible connection between the plan and what the business is trying to do. None of that is exotic. It’s just the design discipline that used to live elsewhere, redirected to the instrument that now matters most.

Mercer’s headline is that pay is holding steady into 2027. We’d add the quieter finding underneath it: the ways a company used to tell people they’re moving up are both narrowing, and the bonus is the one channel left that can still send that message. Spend this planning season making sure it’s built to. A plan designed only to pay out last year’s results will keep doing exactly that — while your best people wait for a signal that, this year, isn’t coming from anywhere else.

If you’re looking for tools to simplify how you manage and administer bonuses — and to turn the annual incentive into something your people can read, predict, and see themselves progressing through — let’s talk.