‘Peanut Butter’ Pay Raises Are Not yet Mainstream, Mercer Finds

Why It Matters

The modest raise levels and limited adoption of flat salary increases signal that merit‑based pay remains dominant, affecting talent attraction and cost‑control strategies across industries.

Key Takeaways

• Average merit increase 3.1%, total pay rise 3.4% in 2026.
• Only 4% of firms used uniform ‘peanut butter’ raises.
• Payscale reports 16% ready, 18% considering across‑board raises.
• High‑tech sector led total pay growth at 3.6%.
• Over half of surveyed employers factor geography into salary grades.

Pulse Analysis

Employers continue to favor merit‑based compensation despite modest overall raise levels. Mercer’s latest survey of 756 companies shows average merit increases of 3.1% and total pay growth of 3.4%, barely missing its own projection. The data also reveals that only a small minority—4%—are applying uniform, across‑the‑board adjustments, often dubbed “peanut butter” raises. This preference underscores a lingering belief that performance differentiation remains essential for rewarding high‑achievers and maintaining internal equity.

Sector analysis highlights subtle but meaningful variations. High‑tech firms posted the strongest total compensation gains at 3.6%, reflecting competitive talent markets and the need to retain specialized skill sets. By contrast, chemicals and other manufacturing sectors reported the lowest total increases at 2.9%, suggesting tighter budget constraints or slower demand cycles. Healthcare services bucked previous trends, delivering a 3% merit increase and 3.3% total rise, positioning the industry as a moderate payer amid ongoing workforce pressures.

Looking ahead, the appetite for “peanut butter” raises appears to be gaining traction. Payscale’s 2026 Compensation Best Practices Report indicates that 16% of companies are prepared to implement flat raises, with an additional 18% actively evaluating the approach. If adoption accelerates, firms may need to recalibrate compensation philosophies, balancing simplicity with the risk of flattening performance incentives. Executives should monitor these shifts closely, aligning salary structures with strategic goals while staying attuned to market‑driven expectations.