Workers eagerly awaiting big pay hikes after their stellar performance reviews are in for a rude awakening: Instead of rewarding employees based on merit, many bosses will be dishing out flat and low “peanut butter” raises spread to all staffers in 2026. And worryingly, it’s a trend that last emerged during a perilous economic time in history.
“It’s a term that’s gone quite viral at the moment, but it’s not a new phenomenon,” Ruth Thomas, chief compensation strategist at Payscale, tells Fortune. “Peanut butter pay increases tend to come into play when you are in an environment of economic volatility and low wage inflation. The last time we really saw this was post the Great Recession, after the financial crisis in 2008 [and] 2009.”
During that dark period for the housing and job markets, Thomas says that pay budget increases were stuck at about 3% for a long time: close to the 3.5% bump also expected this year, according to a recent Payscale report.
And just like during the Great Recession, many employers—around 44%—plan to roll out one uniform, across-the-board wage bump in 2026 in lieu of merit-based raises. About 16% of organizations are newly implementing these “peanut butter” raises: 9% say they already employ the pay strategy, and another 18% of organizations are considering it this year.
The compensation strategist explains that there are a few overlapping market conditions that allowed peanut butter raises to rise in popularity today and back in 2008. During both eras, there was labor instability among workers, pay budgets were restricted, and wage inflation was low. Peanut butter raises thrive when the pendulum swings to an employer’s market—but Thomas cautions bosses against playing a heavy hand.
“Obviously, smaller pay budgets are going to make pay increases individually smaller, [with a] lack of differentiation amongst colleagues. That will probably be de-motivating,” Thomas continues. “Although we’re in an employer’s labor market, organizations still want to retain their top talent. Top talent are going to seek some type of reward for their input to the organization, and that may be a difficulty for many organizations.”
The disheartening job market similarities between 2008 and 2026
Job-seekers and staffers are suffering through a difficult labor market: Hiring has slowed, layoffs are steadily streaming in, and wages don’t feel like they’re holding up.
Looking at the year ahead, the picture doesn’t look too pretty—and looking back, there’s some disheartening déjà vu.
Between January and the start of December last year, 1.1 million layoffs were announced—the sixth time since 1993 that the number had been surpassed, according to 2025 data from Challenger, Gray & Christmas. And notably, several other recessionary years had toppled the layoff high of 2025—including 2020, 2009, and 2001—as years of economic woes crushed the careers of millions across industries.
Americans have also hit record-low confidence in landing a new job since at least 2013, in the thick of the “jobless recovery” following the Great Recession, according to a 2025 study from the New York Federal Reserve. The perceived probability of getting another gig in the case of job loss had dropped to 44.9%, the weakest percentage since the New York Fed started tracking this data over a decade ago.
Even if job-seekers manage to find a job after months to years of applying, they’re now up against the reality of battered pay budgets.
Two-thirds of employers are cutting their pay bump budgets as uncertainty looms
While U.S. companies are holding their average salary-increase budget steady at 3.5%, according to a 2025 report from Willis Towers Watson, there’s a large cohort that is planning to scale back. Nearly a third of businesses plan to lower their compensation-increase budgets compared with last year, citing a potential recession, dwindling financial performance, and desire for more control over costs.
Changes in the economy and labor market contribute to the ebb and flow of peanut butter raises currently taking hold at many American companies. And just like during the Great Recession, employers are wary of what’s ahead.
Lexi Clarke, Payscale’s chief people officer, told Fortune in 2025 that pay-increase budgets are being slimmed as tariffs and economic issues create uncertainty, forcing bosses to be on their guard.
“Economic concerns have now overtaken labor competition as the primary driver of compensation decisions,” Clarke said, as “66% of employers cite this as the reason for pulling back, up 17% from last year.”
