More US employers plan to go back to merit-based pay raises in 2027
At the beginning of the year, more companies in the U.S. said they were moving toward “peanut butter”-style raises, in which everyone gets the same small bump in salary, rather than merit-based pay increases for their employees. Now, it seems they’re changing their tune.
According to a new report from Payscale, a compensation and benefits software company, just one-third of companies plan to follow the peanut butter model in 2027. That’s down from 44% who said they were adopting or would consider adopting that model going into 2026.
Peanut butter raises, a strategy that dates to the Great Recession, are identical raises given to everyone, regardless of merit. The thinking is that doling out small, uniform wage increases — usually 3 to 4% — costs less in the long run than significantly rewarding high-performing employees.
“We are seeing organizations realize that they need to deploy pay strategically,” Ruth Thomas, Payscale’s chief compensation strategist, told CBS News. “They need to think about business transformation, and part of driving that is allocating pay budgets differently.”
How much more can employees expect?
While the prospect of merit raises may give many hardworking employees reason to rejoice, they may find themselves disappointed by the amount. Payscale found that for 2027, employers plan to raise their base pay by an average of 3.5%, up only one-tenth of a percentage point from 2026.
“The size of the compensation budget pie is not getting bigger, but there’s a shift in how employers are choosing to slice it,” Thomas said.
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The average annual salary in the United States ranges between $64,000 and $66,500, according to the Bureau of Labor Statistics.
Raises of that size, Thomas said, will keep pace with inflation — barely. The most recent Consumer Price Index compiled by the Labor Department put annual inflation at 3.5%.
Employees in some sectors may see significantly larger raises — but those in others will lag behind. For example, those working in aerospace and defense are expected to see average raises of 4.5%, while those in telecommunications can only expect 2.5%, Payscale says.
Peanut butter raises still sticking around
The one-raise-fits-all model isn’t going away, however.
“Peanut butter pay may be losing some of its spread, but it hasn’t disappeared,” Thomas said. “Organizations appear to be moving toward more thoughtful and differentiated compensation strategies — which is critical to attracting and retaining talent. When compensation budgets are limited, treating every employee the same feels simple and fair, but it can also fail to recognize the people, skills and contributions that are most critical to the business.”
However, Payscale’s report also indicates that one in four organizations say perceptions of unfair pay are a leading reason they are losing talent, so it’s important to not only make sure pay is competitive but also perceived as fair and equitable by employees.
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Ella Rae Greene, Editor In Chief
