Key Takeaways
- Peanut butter raises are small, across-the-board increases that ignore individual performance.
- According to a new Payscale report, 36% of U.S. employers used peanut butter raises this year.
- These flat raises run the risk of eroding morale and motivation, as high performers see little financial recognition for outsized contributions.
Top-performing employees are giving it their all and expect to be compensated better than employees who aren’t driving results. Now, a new Payscale report shows that some employers are trading merit-based pay bumps in favor of peanut butter raises, a controversial method for increasing pay that spreads raises evenly to all employees regardless of how well they perform.
The report found that 36% of U.S. employers gave out peanut butter raises this year as companies face economic uncertainty. Industries like government and education, and sectors with large workforces and hourly structures, were more likely to distribute raises evenly among staff.
Peanut butter raises are often insufficient to keep top talent. According to the Payscale report, one in four companies disclosed that they were losing talent this year because of smaller-than-expected pay increases. Some staffers are quitting and seeking other opportunities after receiving small raises that they believe do not align with their efforts.
“Peanut butter pay is often framed as the fairest approach because everyone receives the same increase,” Ruth Thomas, chief compensation strategist at Payscale, recently told Fortune.
However, she noted that “employees don’t typically judge fairness by whether everyone got the same.” Instead, they judge fairness based on if companies reward them appropriately for their individual contributions, she said.
“High performers want to know their extra effort mattered,” she added.
The downsides of peanut butter raises
When employers start to increase pay in a way that fails to reflect differences in impact, they are sending the message that performance doesn’t matter. “That’s where motivation starts to erode,” Thomas said.
She argues that peanut butter raises demotivate workers who put in the extra hours. Companies reward these workers the same percentage as those who didn’t go the extra mile.
“Competitive, well-informed pay is still one of the strongest signals that an employer values the contribution those employees make,” Thomas said.
The pros of peanut butter raises
A separate Payscale report released in February found that high-performing businesses are especially keen to adopt peanut butter raises. For example, more than half of companies that said they surpassed their revenue goals last year are using or considering peanut butter raises this year.
The report pointed out that performance-based pay raises are vulnerable to bias because they rely on managers and performance ratings, which are subjective.
Peanut butter raises also fit more neatly into lower budgets. According to a 2025 report from leading insurance broker Willis Towers Watson, about one-third of businesses plan to decrease their salary-increase budgets this year compared to last year.
Starbucks is one company that recently shifted to peanut butter raises. The coffee chain announced a flat 2% raise for all salaried North American employees last year. The move replaced the traditional model in which managers determined raises for their direct reports and applied to Starbucks corporate employees, manufacturing workers and retail leadership.
Key Takeaways
- Peanut butter raises are small, across-the-board increases that ignore individual performance.
- According to a new Payscale report, 36% of U.S. employers used peanut butter raises this year.
- These flat raises run the risk of eroding morale and motivation, as high performers see little financial recognition for outsized contributions.
Top-performing employees are giving it their all and expect to be compensated better than employees who aren’t driving results. Now, a new Payscale report shows that some employers are trading merit-based pay bumps in favor of peanut butter raises, a controversial method for increasing pay that spreads raises evenly to all employees regardless of how well they perform.
The report found that 36% of U.S. employers gave out peanut butter raises this year as companies face economic uncertainty. Industries like government and education, and sectors with large workforces and hourly structures, were more likely to distribute raises evenly among staff.
Peanut butter raises are often insufficient to keep top talent. According to the Payscale report, one in four companies disclosed that they were losing talent this year because of smaller-than-expected pay increases. Some staffers are quitting and seeking other opportunities after receiving small raises that they believe do not align with their efforts.
This story originally appeared on Entrepreneur
