The across-the-board raise is quietly disappearing from the U.S. pay playbook. Payscale’s 11th Annual Salary Budget Survey, drawn from 1,266 organizations surveyed in May and June, finds that only 32 percent of U.S. employers plan to give “peanut butter” increases, the same flat percentage bump spread evenly across the workforce, in 2027, down from 36 percent who did so in 2026. Overall salary budgets are barely moving, projected at 3.5 percent for 2027, up just a tenth of a point from this year, and merit increases tied to individual performance now dominate as the pay strategy of choice at 89 percent of organizations.
The shift matters because it is a compensation technology story as much as a budgeting one. Spreading a flat raise across every employee is administratively simple; running true merit-based, performance-differentiated pay requires the compensation planning and pay equity software that platforms like Korn Ferry has found managers still struggle to explain to their own teams. Payscale’s data adds a retention warning to that gap: 25 percent of U.S. organizations report losing employees in 2026 specifically because pay increases were not competitive enough, meaning the shift away from blanket raises raises the stakes on getting individual merit calls right.
The original insight is in what “peanut butter” raises were actually doing that merit systems have to replace: they functioned as a low-cost retention floor precisely because nobody had to justify them, a dynamic that mirrors why WTW found employers retargeting the same flat budget toward fewer, larger increases rather than expanding it. As that floor disappears, HR and comp teams inherit the harder job of making merit differentiation feel fair enough, and defensible enough, to hold onto the 25 percent of workers now walking over pay.
Source: Payscale
