As companies navigate tighter budgets and economic uncertainty, many are rethinking how they award pay increases. A growing number are opting for what experts call “peanut butter” raises, a strategy that spreads pay increases evenly across employees rather than tying them strictly to performance.

But while the approach may appear fair and efficient, workplace experts warn it could cost companies their highest performers.

What Are “Peanut Butter” Raises?

The term refers to across-the-board raises that are distributed evenly “like peanut butter would be on a sandwich,” according to career coach Colleen Paulson.

Payscale’s 2026 Pay Increase Preview Report found that while 48% of organizations still plan to award raises based on performance, a notable share are considering broader, flatter increases. About 9% of companies already use across-the-board pay raises. Another 16% plan to implement the approach this year, and 18% are considering it.

“There’s always a tension in organizations of how to balance the needs of your high performers while taking care of the entire group,” says Scott Hoffhines, vice president of rewards and systems at Salesloft and founder of Reward Factors. That tension becomes sharper when companies are working with “limited resources.”

Still, Hoffhines cautions that companies embracing across-the-board raises may be “essentially giving up on their top talent,” a move that could hurt morale and retention.

Why Companies Are Choosing Flat Raises

The concept is not new. Last year, Starbucks made headlines when it gave 2% raises to all corporate employees as part of cost-cutting measures, according to The Wall Street Journal.

Budget constraints are a key factor driving the shift. “These companies are under so much pressure to cut costs, and this feels like an easy way to do it,” Paulson says.

Fairness concerns are also shaping decisions. Payscale’s report noted that merit-based pay tied to performance ratings has faced criticism in recent years for being subjective and vulnerable to bias.

Leadership coach and talent development expert Sarah Eppink says some employers view flat raises as more equitable. They help ensure that front-line employees who “don’t necessarily have the visibility of individuals in HQ offices” are not overlooked.

Administrative simplicity is another appeal. Managers often struggle with delivering disappointing news about merit-based raises. Across-the-board increases eliminate the need for those difficult conversations.

The Risk to Top Talent

However, experts say the long-term consequences may outweigh the short-term convenience. Across-the-board raises may seem “equitable on the surface,” but they can frustrate high-performing employees, Eppink says.

When exceptional effort yields the same reward as minimal effort, top performers may ask, “Why would I make exceptional contributions when the bare minimum is receiving the exact same reward that I did?” Over time, those employees may disengage and begin exploring other opportunities.

Paulson notes that companies may not see immediate turnover because the job market remains relatively tight. Hiring rates are low, and many workers feel hesitant to leave stable roles.

“In a competitive job market, companies don’t really feel the need to increase compensation in the same ways that they would in another market,” she says.

But that dynamic could shift. During the Great Resignation, voluntary departures reached record levels. In 2021, 47.8 million people quit their jobs. In 2022, that number climbed to 50.5 million, compared with 42.1 million in 2019. A Pew Research Center study found that 37% of employees cited low pay as a major reason for leaving in 2021.

Cutting into compensation now, Paulson says, is “such a short-sighted strategy.” Top performers may stay put temporarily, but “they’ll be out the door as soon as they can” when stronger opportunities emerge.

What Employees Can Do

For workers disappointed with their raises, the path forward can feel uncertain.

In the past, Paulson would have encouraged employees to negotiate or make a case for higher compensation. But she acknowledges that today’s labor market feels “a little bit more tenuous.” Employees may worry about appearing ungrateful or disruptive.

Still, it may be worth asking about alternative benefits, such as additional vacation time or professional development support.

If you are considering a job change, Paulson suggests updating your resume, optimizing your LinkedIn profile and setting job alerts to quietly explore the market.

“You never know: You might find a great opportunity with people that really appreciate what you bring to the table and will pay you what you’re worth,” she says.

Eppink advises employees to think carefully before making major career moves. “I would not counsel anybody to use this one instance to make a life-altering decision as big as leaving an employer,” she says, “especially right now.”

For companies, the message from experts is clear. Equal raises may feel fair and financially manageable in the moment. But over time, failing to differentiate between average and exceptional performance could weaken the very workforce businesses depend on most.

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