Employers Turning to ‘Peanut Butter’ Raises. But Is It a Good Idea?

Forget merit increases. Peanut butter raises are the pay trend to watch in the coming year.

In light of economic uncertainty, a growing number of employers are leaning into spread out, across-the-board-raises — dubbed “peanut butter” raises — rather than purely relying on merit increases in the coming year. But it’s a strategy that compensation and HR experts say employers need to be cautious of. 

Payscale’s annual compensation report, released this week, found that 44% of companies are opting for, or considering, across-the-board raises for their employees in 2026. While a significant number of employers (48%) are sticking to the tried-and-true method of awarding top performers, spread-out raises are gaining steam for a few reasons. 

“One of the biggest reasons we’re seeing for organizations considering peanut butter pay increases is tightening budgets, combined with a cooling labor market,” said Payscale CHRO Lexi Clarke in Seattle. “Organizations are defaulting to what seem to be safer, more uniform decisions.” 

Peanut butter pay is a more common strategy in times of economic uncertainty, Clarke noted. For example, the practice became prevalent during the 2008 recession. “In uncertain economic conditions, flatter raises feel safer and easier to manage,” she said.

Indeed, the economic picture as of late has been murky for both employers and employees. While inflation has eased in recent months, cost of living has still been a recurring pain point for employees, and pessimism on pay is prevalent. About half of working Americans say they do not believe their wages will ever catch up with the rising cost of living, and 69% feel underpaid, according to a 2026 financial outlook from San Francisco-based career platform Resume Now. And the 2026 SHRM State of the Workplace report found that employees said salary or pay wages are their top workplace need. 

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Economic conditions are also a concern for employers as they try to balance budgets while trying to keep employees happy. “Merit systems can be complex, time-consuming, and hard to defend. As HR teams face tighter compensation budgets and are under increasing resource and administrative pressure, peanut butter pay feels like the simpler, more defensible approach,” Clarke said. 

Scrutiny for Performance Pay

Another reason for the rise of the peanut butter approach is scrutiny of pay for performance practices. “Performance ratings are sometimes viewed as prone to bias, and employers are actively working to mitigate bias, inconsistency between managers, and pay inequities from their compensation strategy,” Clarke said. 

“Tying merit pay increases to performance ratings has come under criticism in recent years for being too subjective and prone to bias,” the Payscale report noted. “At the same time, some organizations have made headlines by electing to standardize pay increases to alleviate administrative burden and reward workers equally, especially for low-wage workers where inflation is a big concern.”

Not a Sustainable Approach 

Although peanut butter raises look to be a big trend this year, experts say they should be viewed as a short-term pay strategy rather than a sustainable one.

While the peanut butter pay approach “feels responsible and safe,” Clarke said, it’s important to note that “this is a short‑term strategy with long‑term consequences.” 

“It undermines market competitiveness, widens pay inequities, and drives a wedge between effort and reward, especially for top performers and high‑demand talent,” she said. “Organizations doing this are setting themselves up for problems down the road.”

Myrna Hellerman, senior vice president at HR and benefits consulting firm Segal in Chicago, agreed. 

“Across-the-board increases as a standalone pay management strategy can, over time, cause significant misalignment of individual employee pay with the market,” she said. “This misalignment can lead to employee discontent and turnover.”

How-to Guide: How to Communicate Limited or No Pay Increases to Employees 

Clarke recommended that employers considering taking the peanut butter approach to pay raises this year ask themselves why they are doing so. “If it’s because of administrative burden, streamline your workflows. If it’s due to inflation, target merit increases to the roles that are hit the hardest. If the concern is bias, dig into your performance practices,” she said.

While peanut butter increases can be effective as one component of a comprehensive pay management mechanic, Hellerman said a robust pay strategy should involve a number of elements, including using market data to set up jobs and pay levels, keeping salary ranges up to date, deciding where employees should fall in their pay range after a certain number of years in the role, regularly checking if employee pay matches performance, and making alignment increases during across-the-board cycles.  

All in all, employers should avoid quick or generic fixes to pay practices.

“HR leaders need to resist the temptation to ‘smooth’ pay practices and instead embrace more dynamic cycles,” Clarke said. “Resist the peanut butter trap. It’s a short-term pay strategy that’s going to bite organizations in the long-term.”