Report Results Smack of ‘Peanut Butter’ Pay Raise Approach for 2026

Will 2026 be “The Year of the ‘Peanut Butter’ Salary Increase”? An upcoming employee compensation report is sure pointing toward that.

A preview of Payscale’s new Compensation Best Practices Report showed median base-pay increases for U.S. employers are expected to hold steady at 3.5% in 2026, which is unchanged from 2025.

While overall pay budgets remain unchanged, the compensation software and data company’s study identified a notable shift in how organizations are allocating those dollars heading into 2026, moving away from performance-based differentiation and toward across-the-board increases. The latter practice is generally known as “peanut butter,” where pay increases are spread evenly across a company.

This article serves up details on this sticky situation.

‘New Difficulties’ on the Horizon?

2026 marks the second consecutive year of slower wage growth, despite inflation starting to climb again, said Ruth Thomas, Payscale’s chief compensation strategist.

“As companies tighten salary budgets, they may encounter new difficulties with retaining key talent and maintaining internal equity,” she said. “HR leaders should anticipate increased scrutiny regarding compensation practices. Regardless of market conditions, they can’t afford to lose their top employees.”

Other key findings from the preview report include:

• 60% of surveyed organizations are either fairly confident or very confident that their pay increases are competitive for retaining and engaging talent. This suggests that while salary budgets are flat, employers feel positive that they are effectively allocating pay increases.
• Smaller organizations are offering higher pay increases, with employers of one to 99 employees averaging 4%, compared to just 3% at organizations with 5,000 to 9,999 employees.
• Higher pay increases are more common in industries where talent is harder to attract and retain due to special skills, labor shortages or both. Top pay increases can be found in construction (5%), agencies and consultancies (4.5%), and technology (4%).

Is a ‘Peanut Butter’ Approach Right for You?

How are employers dealing with their retention and recognition challenges?

According to the report, only 48% of surveyed organizations are planning to differentiate pay increases based on performance, while 44% noted they are either actively taking a “peanut butter” approach, or are considering implementing the practice in 2026. Differentiation increases to 56% for top performers (organizations that reported they would exceed their revenue goals in 2025).

“We often see peanut butter pay raises resurface during periods of economic uncertainty. We last saw them increase after the 2008 Great Recession,” Thomas said. “Combined with smaller salary budgets, performance-based pay increases have faced growing scrutiny for being subjective and prone to bias. As a result of both of these things, more organizations are shifting toward standardized ‘peanut-butter’ raises across the board. Some organizations feel it is easier to give everyone a relatively flat increase, rather than nothing.”

But before you decide to implement this approach, Thomas recommended that you consider whether:

• The available pay differentials really drive meaningful behavioral change;
• Your performance assessment process is robust and bias-free enough to support small base pay differences.;
• Base pay is better served to ensure market competitiveness, pay range and equity alignment; and,
• Incentive pay may be used to reward performance differentiation.

For the last point, Thomas said small changes in base pay rarely influence day-to-day behavior, but incentives tied to results can.

What to Account for in 2026

Although the full Payscale Compensation Best Practices Report won’t be available until later this month, Thomas said the preview can help organizations begin to select strategies aligned with their objectives and to consider labor market trends, while ensuring high performers feel appreciated and motivated to stay.

“Using a ‘peanut butter’ approach distributes pay raises uniformly, but it can dilute individual accountability,” she said. “As a result, organizations should take into account other variable pay options and total rewards — whether it’s bonuses, promotions, upskilling or other long-term incentives to make sure they continue to reward performance.”

Editor’s Note: Additional Content

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