Many employers are embracing what’s known as the peanut butter approach to giving employee raises in 2026. According to a new report from Payscale, a compensation data and software company, 44% of organizations report they plan to consider or implement so-called “peanut butter increases.”
What is a ‘peanut butter increase’?
In a merit-based system, raises are usually determined based on employee performance. As a result, they look different from person to person. Peanut butter increases, however, are identical raises given to everyone, regardless of merit. They get their name because they are spread evenly across the board.
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The strategy first started after the Great Recession to help with budget constraints. According to the logic, doling out small, uniform wage increases in the 3-4% range can cost less in the long run than significantly rewarding high-performing employees.
Weighing the pros and cons
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Since March 2006, the nominal average wage grew by $580 per week. Adjusted for inflation, that’s $154.
Critics of the merit-based system often raise concerns that it is too subjective and easily swayed by bias. Conversely, peanut butter increases are given to every employee, regardless of performance, which also raises concerns over fairness.
“Organizations should choose their strategy based on their goals, keeping the labor market and inflationary pressures in mind, but ultimately making sure top performers feel valued and have a compelling reason to stay engaged,” Payscale’s Chief Compensation Strategist Ruth Thomas said in a statement. “The peanut butter approach spreads pay increases evenly but also spreads accountability thin.”
From an administrative perspective, peanut butter raises are also just easier.
How it all adds up
According to Payscale, 48% of organizations said they still plan to base pay increases on performance. On average, employers plan to hold base salary increases the same as 2025 at 3.5%, according to a recent survey from global consulting firm Mercer.
While salaries are mostly determined based on the cost of labor rather than the cost of living, according to Payscale, many organizations still consider cost-of-living when it comes to annual salary increases. In 2026, 45% of organizations factor cost of living into pay decisions overall, according to Payscale’s report.
The U.S. inflation rate went up 2.7% from December 2024 to December 2025, according to the latest Consumer Price Index data. Meanwhile, wages grew by 3.8%, outpacing inflation.
Moving annual raises away from merit doesn’t mean you shouldn’t try. Many companies still reward top performers with bonuses or promotions, extra vacation time and more flexible schedules.
