Employees have long been sold the idea that working hard and outperforming their peers would lead to sizable pay hikes and title upgrades. But now, some companies are ditching merit-based wage bumps in favor of “peanut butter raises”—and it’s hurting employee morale.
Around 36% of U.S. companies say they gave out standard, across-the-board pay increases this year, according to a recent Payscale report. These “peanut butter raises”—which are spread out evenly to all staffers, regardless of their performance—have been dolled out as companies grapple with economic uncertainty. And those who work in industries like government and education are often on the receiving end; the report notes peanut butter raises are more common among sectors with huge workforces, hourly staffers, and step-structures.
But dishing out weak raises is doing more than bruising the ego of hard-working employees.
Now, some staffers are jumping ship when they realize their pay bumps don’t align with their efforts. Around 25% of companies admitted they were losing talent in 2026 due to insufficient wage increases, according to the Payscale report.
“Peanut butter pay is often framed as the fairest approach because everyone receives the same increase,” Ruth Thomas, chief compensation strategist at Payscale, tells Fortune. “But employees don’t typically judge fairness by whether everyone got the same—they judge it by whether they were rewarded appropriately for their individual contribution. High performers want to know their extra effort mattered.”
“When pay increases fail to reflect differences in impact, organizations risk sending the message that performance doesn’t make a difference, and that’s where motivation starts to erode,” Thomas added.
Employers are forking over more of their budget for high-performers in 2027
Peanut butter raises are a contentious issue among workers. On the one hand, the flat pay bump structure mitigates bias and allows all employees to receive a monetary boost, which can be a lifeline for many professionals amid America’s cost-of-living crisis.
But on the other hand, others argue that peanut butter raises are “demotivating” for workers putting in the extra effort—because no matter how well they do on the job, they’ll be rewarded the same as those who trailed behind.
However, looking ahead, employers do plan to reward their top-performing employees. Around 32% still plan to distribute peanut butter raises next year, but the report found that merit increases will account for 3% of the 3.5% total payroll budget for 2027, representing the largest chunk.
And while economic uncertainty may have stifled performance-based pay bumps, more companies are realizing the importance of competitively compensating their star staffers.
“Organizations may receive more applications overall, but attracting and retaining people with the right skills remains challenging,” the chief compensation strategist said. “Competitive, well-informed pay is still one of the strongest signals that an employer values the contribution those employees make.”
Why employers are giving out peanut butter raises: economic uncertainty and dwindling budgets
There are a few reasons as to why peanut butter raises are popular with employers.
It’s long been the norm to award raises based on workers’ merit, which Payscale described as a “best practice.” But peanut butter raises may be employers’ attempt to alleviate financial headwinds for workers who earn the least. Plus, as Payscale noted in a report earlier this year, peanut butter raises “alleviate administrative burden and reward workers equally,” taking some weight off their shoulders.
As companies rethink their payroll budgets amid economic uncertainty, a flat, standardized raise may look like the best option.
Many U.S. companies have held their average salary increase budget steady around 3.5% in recent years, but there’s even a sizable cohort who have planned to scale back.
Around a third of businesses planned to lower their pay-increase budgets this year compared to 2025, according to a report from Willis Towers Watson. Employers say that a looming recession, dwindling financial performance, and desire for more control over costs are stifling their payroll allowances—which could explain why they’re forking over smaller “peanut butter” pay bumps to compensate.