Many employers are ditching merit-based pay bumps in favor of ‘peanut butter raises’

Professionals have long been taught a simple formula for career success: work hard, outperform your peers, and bigger paychecks will follow. But this year, employers are planning to reward their star staffers differently; instead of factoring in merit, more companies are considering general pay hikes spread out evenly, dubbed the “peanut butter raises” trend. 

Around 44% of employers plan to roll out uniform, across-the-board wage bumps in 2026, according to a new Payscale report. 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. And top-performing companies are all-in on the approach: around 56% of organizations that reported that they would exceed their revenue goals in 2025 are using or actively considering peanut butter pay increases. 

Companies are still planning to boost employee pay by 3.5%, the same rate as last year. And while 48% of businesses will still continue the tradition of awarding pay bumps based on worker performance—which the report describes as a “best practice”—the new compensation fad may be trying to alleviate financial headwinds for low-paid workers. 

“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.”

Dwindling pay budgets and flat raises amid economic uncertainty 

Job-seekers and staffers alike 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.

Wall Street analysts and business executives have been floating the idea we’re in a “K-shaped economy”; higher-income Americans are witnessing their earnings and wealth rise, while lower-income people are struggling against smaller gains and the high cost of living. The concept has come to explain the confusing U.S. economy, where solid overall growth contrasts with sluggish hiring and rising unemployment. 

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 to last year, citing a potential recession, dwindling financial performance, and desire for more control over costs. 

Last year, one high-profile employer ditched its merit-based raises in favor of a general, flat pay bump. Starbucks announced that it would be giving a standard 2% raise to all salaried North American employees in 2025, diverging from the norm that managers have a say in the raises of their direct reports. It was all a part of CEO Brian Niccols’ bid to reduce costs in a broader company turnaround effort. 

But Starbucks is just one notable name in a growing list of employers hunkering down for economic hardship. Lexi Clarke, Payscale’s chief people officer, told Fortune last year that pay-increase budgets are being slimmed as tariffs and economic woes create uncertainty, forcing many employers 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.”

As more companies trim back wage budgets and hand out peanut butter raises, there are many still reinvesting in their star talent. America’s largest private employer, $968 billion retail titan Walmart, unrolled a strategy in 2024 to pay its top store managers upwards of $620,000 per year.

U.S. CEO John Furner said it was a way to “make managers feel like owners,” acknowledging their success with a slice of the profit pie. Their average base pay was hiked from $130,000 to $160,000, raising their total compensation to between $420,000 and $620,000 annually.

And with more than 4,000 store managers across the U.S. (and around 1.5 million workers) when the policy went into effect, the payout wasn’t just generous—it was a calculated bet on culture.

This story was originally featured on Fortune.com