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A “peanut butter” raise spreads a limited budget evenly across all employees, rather than rewarding top performers. Instead of giving a 5% raise to high achievers and 1% to poor performers, everyone gets a roughly equal 3% increase. Employers use this method to maintain internal equity and avoid difficult conversations, but it often leads to “rewarding mediocrity.” This year, with economic uncertainty and tighter budgets, peanut butter raises are becoming more common. While they may feel fair on the surface, experts warn they can demotivate high performers and cause top talent to leave if their contributions aren’t specifically recognized.
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