‘It’s such a shortsighted strategy’

More companies are leaning into “peanut butter” pay increases this year, according to Payscale’s Pay Increase Preview Report.

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

About half — 48% — of surveyed organizations said that they will continue giving out pay increases based on performance, according to Payscale.

But the report found that plenty of companies are contemplating “peanut butter” raises: Along with the 9% of organizations that already practice across-the-board pay increases, 16% said they were newly planning to implement the approach this year and 18% said they were considering it.

“There’s always a tension in organizations of how to how to balance the needs of your high performers while taking care of the entire group,” says Scott Hoffhines, a compensation expert and the vice president of rewards and systems at SalesLoft, especially when companies have “limited resources.”

Still, in Hoffhines’ view, companies that implement “peanut butter” raises should be aware that they are “essentially giving up on their top talent,” he says — and that could lead to morale and retention problems down the line.

The concept of “peanut butter” pay raises isn’t new, Hoffhines says. Last year, for example, Starbucks made headlines when it gave 2% raises to all corporate employees in an effort to reduce costs, according to The Wall Street Journal.

Strained compensation budgets could be behind why some companies are implementing across-the-board raises, according to Paulson. “These companies are under so much pressure to cut costs, and this feels like an easy way to do it,” she says.

Fairness is also a concern: The Payscale report noted that “tying merit pay increases to performance ratings has come under criticism in recent years for being too subjective and prone to bias.”

Some companies may view across-the-board increases as a more “equitable” approach, according to leadership coach and talent development expert Sarah Eppink: They ensure that front-line employees who “don’t necessarily have the visibility of individuals in HQ offices” aren’t overlooked for pay raises, says Eppink, who is also an adjunct instructor at Bowling Green State University.

“Peanut butter” raises are also easier to execute from an administrative perspective, Eppink adds. In general, managers don’t want to “have to deliver bad news,” she says. Implementing across-the-board raises removes the need for “difficult conversations” about why certain employees will or won’t receive merit-based increases.

Across-the-board raises may seem “equitable on the surface,” but they can be discouraging for high-performing employees, according to Eppink.

When pay increases are no longer tied to performance, workers who are “hitting it out of the park” will question, “Why would I make exceptional contributions when the bare minimum is receiving the exact same reward that I did?” she says.

In the long term, these employees are likely to become “disengaged” and look for other jobs, Eppink says.

Companies may not see the impact of “peanut butter” raises on retention right now, according to Paulson. In light of the “challenging” job market and low hiring rates, she says, many workers are reluctant to leave their current roles — and employers are well aware of that.

“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.

However, employees who feel short-changed today are likely to look for other roles when the job market is more favorable, according to Eppink.

Cutting into compensation is “such a short-sighted strategy” for companies, Paulson says. Top performers will be “out the door as soon as they can” when they find employers that better compensate them for their skills, she says.

During the Great Resignation, for example, people voluntarily left their jobs at record rates — 47.8 million people quit in 2021 and 50.5 million people quit in 2022, compared to 42.1 million in 2019. More than a third (37%) of employees said that low pay was a major reason they moved on in 2021, according to a Pew Research Center study.

In the past, Paulson says she would advise employees who were disappointed with their pay raises to talk to their managers and make a case for a larger increase. But in today’s job market, she knows employees are nervous to “rock the boat,” she says.

“Everything feels a little bit more tenuous,” Paulson says. “It feels a little bit riskier to go in and have those kinds of conversations with your manager.” Still, it doesn’t hurt to ask your manager if you could be eligible for any other benefits, such as additional vacation time.

If you’re considering switching jobs, Paulson recommends updating your resume, optimizing your LinkedIn profile and setting up job alerts to “dip your toe in the water and see what’s out there.”

“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.

Still, Eppink recommends taking a step back to evaluate the “long game” before deciding to leave your job over compensation concerns. “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.”

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