Something has shifted at a growing number of workplaces: Performance reviews are out and annual pay raises are standardized.
According to a new report from Payscale, a compensation research firm, more employers are doling out raises as across-the-board salary increases, also known as a flat “peanut butter” increase, instead of providing raises based on individual performance.
“It’s not a new phenomenon,” Ruth Thomas, pay equity strategist at Payscale, told Yahoo Finance. “We’ve seen it previously. If you look back over the last 30 years of compensation management, it tends to emerge when you’re in a low-wage inflation environment or when you’re in a situation of economic volatility.”
Learn more: Jobs, inflation, and the Fed: How they’re all related
Payscale estimates base pay in 2026 will modestly increase an average of 3.5% — same as last year. That’s not terrible, but it is below 2023 when workers relished pay hikes that averaged 4.8%. Payscale’s survey jives with raise expectations reported by other compensation trackers including Mercer and The Conference Board.
“For 2026, pay increases look steady rather than flashy,” Rita Meyerson, The Conference Board’s principal researcher for human capital, told Yahoo Finance.
Pay bumps vary by employer size and industry, ranging an average of 3% at larger firms with more than 5,000 employees to 4% at smaller firms with fewer than 100 employees and 5% in some industries, such as construction and technology, according to Payscale.
There’s a retreat from performance-based pay decisions.
This year, less than half of organizations plan to continue pay increases based on performance, according to Payscale’s data. Another 18% of organizations are considering peanut butter pay increases, 16% have planned to implement peanut butter increases, and 9% already use this style of ramping up pay.
“This was a trend that we were anticipating,” Thomas said. “Starbucks (SBUX.O), for instance, announced in August that it would have a 2% hike to all salaried employees in North America. I would expect to see more organizations moving in this direction.”
There are lots of reasons for abandoning annual performance reviews as the yardstick for pay raises.
“Historically, performance reviews are recognized as having a tendency for bias and poor predictors actually in terms of true performance outcomes or driving business outcomes,” Thomas added. “But we were surprised at the numbers this year that indicated that they’re doing it, thinking about doing it, or in the process of implementing it.”
The primary reason why growing numbers of employers are no longer conducting traditional once-a-year performance reviews that provide the justification for salary increases: They’re a lot of hassle.
“The classical structure of these reviews, namely carrying them out on an annual basis, has been generating little more than stress, frustration, pushback, and wasted time for managers and the individuals who report to them,” Ken Lloyd, author of “Performance Appraisals & Phrases for Dummies,” told Yahoo Finance.
“This does not mean that employers are abandoning performance appraisals completely. Rather, there is a move toward biannual or quarterly sessions that are forward-focused, interactive, and centered on performance improvement as well as employee growth and development,“ he said.
In other words, you can expect continuous feedback, but that doesn’t necessarily correlate with the size of your paycheck.
“Instead of a manager being simply an appraiser or evaluator, this approach calls for them to act as a coach,” Lloyd said.
The potential fallout for many workers: apathy and anxiety. For loads of workers, performance-based pay is a huge incentive to dig in and deliver above expectations year in and year out.
When every worker is rewarded in the same fashion, it feels like your employer is essentially telling you that even when you crush it, you’re not going to be rewarded.
That may be demoralizing, but it’s not the time to make waves. Workers have less leverage and are no longer in a position to demand higher salaries and promotions they enjoyed a few short years ago, when there were two open jobs for every job-seeking worker.
Read more: Worried about job security? Here’s how to protect your finances.
The upshot is that many are clinging to their jobs while simultaneously trying to stay motivated without the pay incentive or pats on the back from a manager’s performance review.
Of course, performance-based pay raises aren’t “the only lever,” Meyerson said.
“More companies are carving out separate pay budgets for things like promotions, and skills-based increases, signaling a shift toward more flexible, purpose-driven pay decisions,” she said.
Have a question about retirement? Personal finances? Anything career-related? Click here to drop Kerry Hannon a note.
I asked several career coaches for their tips on how workers can stay motivated when the workplace feels edgy.
Add to your wheelhouse: Learning something new, particularly a skill, is the best way to stay motivated, said Beverly Jones, an executive career coach with Clearways Consulting. Be entrepreneurial in finding ways to incorporate new learnings into your current job. Express an interest in a new assignment to your boss or raise your hand for a training experience.
Soul-searching time: Pull together a short list of why you’re dragging at work for your eyes only. There may be several reasons why you don’t feel motivated on the job, Jones said. “It’s probably not just the uniform pay raises that are getting you down, or no longer getting the annual gold star report from your boss. Look at your own habits and attitude and take steps to change it up to stay psyched and proud of your work.”
It’s not about you: One subtle move that can lead to new opportunities that excite you is to suss out what your boss needs to be successful and find ways to support them, Jones said.
Negotiate from the get-go. “If you’re job-hunting now, I would urge you to advocate for the highest possible pay grade at the start,” Maggie Mistal, a career consultant and executive coach, said. “This pay and performance trend makes negotiating your starting salary up front more important than ever.”
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including “Retirement Bites: A Gen X Guide to Securing Your Financial Future,” “In Control at 50+: How to Succeed in the New World of Work,” and “Never Too Old to Get Rich.” Follow her on Bluesky and X.
Sign up for the Mind Your Money newsletter
Click here for the latest personal finance news to help you with investing, paying off debt, buying a home, retirement, and more
Read the latest financial and business news from Yahoo Finance
dailynewsnblog
