Feb 4, 2026
Workers anticipating an annual wage increase could find that their employer is changing the way they determine raises in 2026.
A report on pay increases from compensation data and software company Payscale found that 44% of organizations were either using, or actively considering, “peanut butter” pay increases for staff (1).
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The term peanut butter increases refers to across-the-board pay raises, as opposed to increases that are based on merit.
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Payscale says that performance ratings-based pay increases have faced scrutiny recently, with criticisms that they are bias-prone and subjective. The report also notes that, “some organizations, particularly those with large frontline or lower-wage populations, are rethinking their compensation differentiation as inflation continues to affect workers unevenly.”
While 48% of organizations said they plan to continue using performance-based pay increases, 9% already use the peanut butter approach, 16% are planning to implement it and 18% are considering it.
What it means for your budget
Payscale expects median base-pay increases for 2026 will be 3.5%, unchanged from 2025.
For an employee counting on a merit-based pay increase, a switch to across-the-board raises could mean a less-than-expected pay bump this year. Of course, the opposite could be true for workers who receive an across-the-board increase and weren’t expecting a meaningful increase, or any increase at all.
Payscale chief compensation strategist Ruth Thomas told CBS MoneyWatch that organizations’ pay increase budgets are declining, “so it’s easier to give everyone a relatively flat increase” (2).
Inflation and cost-of-living increases have put pressure on some Americans, especially lower-income families. Inflation at the end of 2025 sat at 2.7%, per the Bureau of Labor Statistics. While this is below the median pay increase projected by the Payscale report, it doesn’t leave much breathing room for some workers.
December’s U.S. jobs report showed that 2025 was one of the worst years in terms of job growth in decades, according to CNN (3). Outside of recession years, the 584,000 jobs added (subject to revision) in 2025 was the weakest year of job growth since 2003.
It’s no wonder Americans are clinging to their jobs amid such a poor employment market.
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Deciding what works for you
If you find yourself in a workplace where annual wage increases are spread out like peanut butter, you may be wondering if this framework is beneficial for you.
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If you’re a worker who expects performance-based pay increases, learning that raises will be the same across the board could leave you feeling demotivated or devalued. If this is the case, you could talk to your organization about whether you will be eligible for merit-based bonuses, a promotion or additional benefits.
For some employees, benefits can have a significant impact on household budgets, especially child care benefits, as child care can take a major bite out of parents’ incomes.
Either way, among those who learn that 2026 will come with a lower pay increase than they were expecting, it’s important to adjust your budget to account for this. Many Americans are looking for ways to stretch their paychecks amid the high cost of living and inflation.
Explore what areas you can pare down. Perhaps you can trim transportation costs by taking public transit a few times a week instead of driving, or you can cut down on your monthly subscriptions. If you are paying off debt, look into whether you can negotiate a lower interest rate, especially if you have high-interest debt such as credit card debt.
If you discover your raise won’t be enough to sustain you, you might consider searching for a new job, even though it might be a tight labor market.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Payscale (1); CBS News (2); CNN (3)
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Rebecca Payne has more than a decade of experience editing and producing both local and national daily newspapers. She's worked on the Toronto Star, the Globe and Mail, Metro, Canada's National Observer, the Virginian-Pilot and Daily Press.
