Why ‘Peanut Butter’ Raises Are Backfiring on Companies in 2026

In a tight labor market, employers are discovering that spreading pay raises evenly may feel fair—but could hurt performance and push top talent out the door.

BY BRUCE CRUMLEY @BRUCEC_INC

Illustration: Inc; Photo: Getty Images

Deciding how to accord staff raises is never easy for business owners, who typically want to be fair to everyone but particularly reward top performers to encourage continued productivity boosts. But today’s low rates of both recruitment and turnover will likely make pay decisions even trickier for leaders in 2026, and raises the risk they’ll end up making different groups of workers unhappy no matter what they do.

Many employees took heart in recent months at hearing reports that a large swath of companies were set to hand out so-called “peanut butter” raises this year. According to various surveys, nearly 35 percent of businesses said they were either considering, or had decided to use that technique of spreading annual pay hikes evenly across their workforces. There are several reasons for companies to select that method. But many employers said they’d adopt it in 2026 to support lower and mid-level staff who’ve suffered years of robust inflation, are feeling financial pressure as a result, and worry that artificial intelligence tools may threaten their continued employment.While the altruism and egalitarian logic behind “peanut butter” raises is commendable, business consultancy Korn Ferry recently noted many companies may soon abandon plans to grant them for not being in their best longer-term interests. Meanwhile, its experts also warned that employers who stick with that approach as being fairer to the widest number of workers may hack off their most productive employees expecting compensation proportional to their outstanding efforts.“(A) peanut-butter approach would represent a disconnect from the stated goals—namely, to attract, then reward top talent—of many organizations,” Korn Ferry said in a blog post titled “A Closer Look at ‘Peanut Butter’ Raises.”

Aware of that, it noted, more companies are instead “focusing their pool of raises only on the most productive” employees. That’s based on sound business logic as being more likely to produce continued high performance from recipients. Yet adopting that strategy will also will leave most other workers with, well, peanuts—if even that—which won’t make the majority of staff to happy with management or its decision.

Be that as it may, there’s an additional reason why many companies are opting not to go with the chunky and creamy raise strategies that reports said they would. Despite surveys suggesting that a broad-based pay bump approach would be a welcomed novelty in 2026, it’s actually been benefitting many workers in some ways for a while—leaving some employers thinking they may need to change that.

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According to Korn Ferry’s calculation, last year alone roughly three-quarters of all employers accorded raises to at least 80 percent of their workers. That’s pretty peanut buttery on its own. But nearly half of those businesses awarded those pay increases across 95 percent of their staff. That usually happened with companies giving all employees an average 3.5 percent bump in base salary, then often adding larger hikes or bonuses to their best performers on top of that.

But now, despite all the reports promising peanut butter all around, Korn Ferry says a lot of companies are rethinking those plans, and asking themselves where the best return on those pay raise investments will come from.

“(S)ome executives would rather give a substantially higher percentage—if not the entirety—of their raise pool to top performers, or at least to those with the most in-demand skills,” the blog post said. “Increasingly, leaders are tying compensation decisions to business realities and performance metrics.”

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