Nearly half of U.S. companies are abandoning merit-based pay increases in favor of uniform, across-the-board raises, according to new compensation data that signals a fundamental shift in how employers reward—or fail to reward—performance.
A Payscale report found that 44% of companies plan uniform wage increases in 2026. Of those, 16% are newly adopting the approach, 9% already use it, and 18% are actively considering it. The shift is most pronounced among high performers: 56% of companies expecting to exceed revenue goals are using or considering standardized raises.
The trend has a nickname in compensation circles: "peanut butter raises"—spreading the same thin layer across everyone.
Why Companies Are Giving Up on Differentiation
The official explanation centers on bias and simplicity. Payscale notes that "tying merit pay increases to performance ratings has come under criticism in recent years for being too subjective and prone to bias." That's true, but incomplete.
The real drivers are more pragmatic:
Budget pressure: Nearly a third of businesses are cutting compensation budgets compared to last year, citing recession concerns and cost control. When the raise pool shrinks, differentiation becomes politically impossible. Giving top performers 5% while average employees get 2% creates resentment that outweighs any motivational benefit.
Retention over performance: In a tight labor market, the priority shifted from rewarding excellence to preventing departures. Uniform raises ensure no one feels slighted enough to explore other options. It's risk management, not talent management.
Manager avoidance: Performance-based systems require managers to make and defend distinctions between employees. Many organizations learned that managers will avoid difficult conversations by rating everyone as meets expectations. Standardized raises eliminate the pretense.
Administrative simplicity: Running a merit system requires performance reviews, calibration sessions, and documentation that consume HR resources. Across-the-board raises require a calculator.
Who Wins and Who Loses
Lower-wage workers benefit most from the shift. A 3.5% raise on $40,000 provides meaningful relief from inflation. High performers earning $150,000 lose the differential that previously rewarded excellence.
The Payscale data shows average salary increase budgets holding steady at 3.5%, meaning the total compensation spend isn't changing—just the distribution. Companies are choosing equity over meritocracy, or more accurately, choosing to avoid the difficulty of implementing meritocracy.
Starbucks exemplified the trend in 2025 by implementing a standard 2% raise for all salaried North American employees, removing manager discretion entirely. The move came as CEO Brian Niccol pursued cost reduction, and standardization delivered savings on both compensation and administration.
The Performance Paradox
Here's what makes the trend notable: high-performing companies are adopting it at the same rate as struggling ones. That suggests the shift isn't driven by financial distress but by a broader reassessment of what performance-based pay actually achieves.
The dirty secret of merit pay is that it rarely worked as intended. Studies consistently show that the differential between high and average performers was typically too small to motivate behavioral change. A 4% raise versus 3% generates $1,000 annually for a $100,000 employee—meaningful over time but insufficient to drive sustained extra effort.
Meanwhile, the perception of unfairness from those receiving lower increases created morale problems that exceeded any gains from rewarding top performers. Companies are implicitly acknowledging that the costs outweighed the benefits.
What This Means for Workers
For employees, the message is clear: your compensation growth depends on job changes, not performance. If excellence delivers the same raise as mediocrity, the rational strategy is to minimize effort while maximizing visibility and networking for the next role.
The shift also eliminates any pretense that internal equity matters. High performers who could earn more elsewhere are effectively subsidizing lower performers who couldn't. That's a sustainable model only in environments where external opportunities are limited.
The Bottom Line
Companies abandoning merit pay aren't making a philosophical statement about performance. They're acknowledging that differentiation is hard, politically fraught, and often ineffective. Across-the-board raises represent the path of least resistance.
The question is whether simplicity comes at a cost. Organizations that stop rewarding excellence may find that excellence becomes optional. In competitive industries, that's a problem. In stable sectors with limited competition, it's just efficient resource allocation.
The numbers don't lie: companies have decided that retaining everyone is more valuable than rewarding anyone. Whether that proves wise depends on whether "everyone" includes the people actually driving results.
