Why you might get a “peanut butter”-style pay raise in 2026

In 2026, many workers may find themselves receiving a “peanut-butter” style pay raise, as revealed by new research from compensation expert Payscale. The study found that more than 40% of companies are opting to give identical, across-the-board hikes rather than merit-based raises. This approach, known as the peanut-butter method, involves evenly spreading pay increases across the entire workforce.

According to Payscale’s report, some employers are moving away from performance-based pay increases due to concerns about subjectivity and bias. By spreading pay hikes evenly, companies can also save money and simplify the administrative process. Despite this shift, merit-based pay hikes still remain the predominant method, with 48% of organizations planning to rely on performance-based raises.

The average pay raise for 2026 is expected to hold steady at 3.5%, the same as in 2025. For a worker earning $65,000, this would amount to an additional $2,275 per year. However, there are downsides to peanut-butter raises, as they can discourage employees from putting in extra effort if they do not expect to be rewarded for their hard work.

Ruth Thomas, chief compensation strategist at Payscale, highlighted that top performers may feel disadvantaged in an environment without differentiation based on performance. She suggested that companies could still reward top performers with bonuses or promotions as alternatives to base pay increases.

Peanut-butter raises gained popularity after the Great Recession as companies faced budget constraints. With budgets tightening once again, more companies are opting for this strategy. Smaller establishments with fewer than 100 employees are offering higher pay increases (4%) compared to larger companies. Industries struggling to find workers, such as construction, agencies, consultancies, and technology, are offering higher pay hikes.

In particular, construction is seeing a 5% increase in pay, while agencies and consultancies are offering 4.5% raises and the technology sector is providing 4% raises. Some blue-collar fields, like construction, are becoming more popular among younger job-seekers who are looking for roles that are less likely to be automated by AI.

According to a 2025 survey from Jobber, 77% of Generation Z individuals prefer jobs that are hard to automate, with carpentry, plumbing, and electrical work being identified as occupations that fit this criterion. This shift in preference is driven by the perception that blue-collar roles are less susceptible to AI’s impact compared to white-collar jobs.

In conclusion, while peanut-butter raises may be a cost-effective and administratively simple solution for companies, they may also have drawbacks in terms of employee motivation and performance. Companies should consider a combination of base pay increases, bonuses, and promotions to reward top performers and retain talent in a competitive market.