Why Merit Pay Raises Are Causing Problems at Work
Episode Description
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
Peter Capelli discusses "peanut butter raises" and their implications for fairness and employee motivation in the workplace.
Key points
- The Peanut Butter Raise. Companies are using the term 'peanut butter raise' to describe equal pay increases for all employees, regardless of performance. This raises questions about fairness and motivation.
- Inflation and Pay Raises. This year's pay raises are below the rate of inflation, leading to real income cuts for many employees. The fairness of equal raises is called into question.
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Episode highlights
- The Peanut Butter RaiseCompanies are using the term 'peanut butter raise' to describe equal pay increases for all employees, regardless of performance. This raises questions about fairness and motivation.“The term peanut butter raise is kind of in the vernacular of companies right now.”0:41Jun 22, 2026
- Inflation and Pay RaisesThis year's pay raises are below the rate of inflation, leading to real income cuts for many employees. The fairness of equal raises is called into question.“If everybody got just the merit pay increase, they're all losing slightly to inflation.”2:00Jun 22, 2026
