Why Merit Pay Isn’t Always Fair
Episode Description
Should employees who are doing exactly what’s expected of them receive no raise? Peter Cappelli, Wharton Management Professor, explains the fairness dilemma at the heart of merit pay. As companies face limited compensation budgets and inflation outpaces many annual raises, leaders must decide whether to concentrate rewards on top performers or ensure all employees keep pace with rising costs.
ABOUT THE EPISODE Should top performers always receive bigger raises? Peter Cappelli, Wharton Management Professor, explores the growing debate over merit pay and the return of so-called “peanut butter raises,” where pay increases are distributed more evenly across employees. As companies face inflation, budget constraints, and shifting labor market conditions, leaders must balance rewarding high performers with maintaining fairness and morale across their workforce.
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Brief Summary
The episode examines the challenges of merit pay amidst inflation and budget constraints.
Key points
- Merit Pay Increases. This year’s merit pay increases fall below inflation, impacting real income for employees.
