Key Highlights
- Payscale reports 44% of companies plan to give identical, across-the-board hikes in 2026.
- This “peanut-butter” approach is due to concerns about performance-based raises being subjective and potentially biased.
- While merit-based pay remains the predominant method used by companies at 48%, there are downsides to peanut-butter raises, such as discouraging extra effort from employees.
- Small businesses with fewer than 100 employees are offering higher average raises compared to larger organizations.
New Year, Same Old Budgets: How Companies Plan to Raise Pay in 2026
As we step into the new year, companies across industries face a familiar challenge: how to adjust employee salaries without breaking the bank. According to recent research from Payscale, nearly half of these organizations have opted for a “peanut-butter” approach to compensation hikes—a strategy that involves giving all employees similar raises regardless of their performance or contributions.
In 2026, 44% of companies plan to rely on this method, down slightly from the previous year but still a significant share. This shift is driven by concerns that performance-based pay increases can be too subjective and potentially biased.
Ruth Thomas, chief compensation strategist at Payscale, explains: “With no differentiation based on performance, it’s easier to give everyone something. But there is a risk that top performers will feel disadvantaged in that environment.”
While the peanut-butter approach simplifies administrative tasks, it also comes with its own set of challenges. Thomas acknowledges this method can discourage employees who feel they are not being rewarded for going the extra mile.
She adds, “Base pay is not your only lever, and organizations may look more at bonuses and promotions when base pay budgets are restricted.” In fact, the report suggests that smaller companies with fewer than 100 employees are offering higher average raises—4% compared to their larger counterparts, which plan for 3.5% increases.
Despite this trend, merit-based pay remains the dominant approach. With 48% of organizations planning to rely on performance-based raises, it’s clear that companies still value individual employee contributions highly. However, this method can be more complex and time-consuming to implement.
Agriculture and Technology: Rising Stars in Compensation Growth
Not all industries are treating their employees the same. According to Payscale’s report, sectors struggling with labor shortages are offering above-average pay hikes. Construction, for instance, is seeing 5% raises, while agencies and consultancies are planning 4.5% increases, and technology companies are aiming for a 4% bump.
Interestingly, some blue-collar fields like construction have become increasingly attractive to younger job-seekers as automation continues to reshape the hiring landscape. According to a 2025 survey by Jobber, 77% of Generation Z respondents want jobs that are hard to automate, with carpenters, plumbers, and electricians topping their list of preferred professions.
Industry Context: A Slow Decline in Pay Increase Budgets
The decision to opt for peanut-butter raises isn’t just a reactive measure. Thomas notes that more companies are tightening their budgets as they face structural challenges that limit flexibility. “We’re now seeing a slow decline in pay increase budgets again, so it’s easier to give everyone a relatively flat increase.” This trend aligns with the overall economic environment where many businesses are prioritizing cost control measures.
In conclusion, while 2026 may see some changes in how companies approach compensation hikes, the core challenge of balancing employee satisfaction with financial constraints remains. As we move forward, it will be interesting to observe how these strategies evolve and whether they successfully address the complex needs of today’s workforce.
