Using our heads to solve your Reward challenges.
"Peanut butter pay rises" is a phrase that seems to have been everywhere recently. The name might be new, but the practice certainly isn't. It simply describes an across-the-board pay increase applied to everyone.
The name comes from the idea of spreading peanut butter evenly across a slice of toast. Instead of concentrating it in one place, it gets spread thinly across the whole surface.
In Reward terms, the same thing can happen with the pay budget. Rather than directing increases to particular roles, performance levels or market pressures, the budget is spread evenly across the entire workforce. Everyone gets the same percentage increase.
This approach tends to appear in two situations:
On the surface, it feels fair. It's also administratively easy. But easy and fair are not always the same thing.
This is about equality versus equity. You may remember the cartoon that circulated a few years ago explaining the difference between equality and equity. Three children are standing behind a fence trying to watch a baseball game. One child is tall enough to see over the fence already. The second is about a foot too short. The third is even shorter.
Equality says: give each child the same one-foot step ladder. The middle child can now see. The tallest child didn't need one in the first place. And the shortest child still can't see the game. We have used all three of our stepladders.
Equity says: give each child what they actually need to see the game. The tall child doesn't need a ladder. The second child gets a one-foot ladder. The third child gets a two-foot one. Now all three can see. We have still used 3 feet of step ladder.
So, what does this means in terms of pay?
A blanket 2% pay rise for everyone is equality, not equity. That distinction matters far more than it might appear at first glance because the reality inside most organisations is that different roles, different markets and different employees are experiencing very different pressures.
A flat increase assumes that everyone is in the same position. They rarely are.
There are hidden problems that peanut butter pay rises can create. Across-the-board increases often feel like the safest option but in practice they can mask several underlying issues.
1. Market misalignment grows quietly. Some roles move faster than others in the external market. Digital, data, engineering and cyber roles are obvious examples. If those roles are receiving the same increases as everyone else, their pay can drift further and further behind the market. The risk is that the organisation only discovers the problem when employees start leaving for better offers elsewhere.
2. Compression creeps in. Minimum wage increases have significantly outpaced general salary growth in recent years. For example the UK National Living Wage increased 4.1% in April, National Minimum Wage for 18-20 year olds increased by 8.5% and the Living Wage increased by 6.8%.
These increases are essential and positive, but they also create pressure higher up the pay structure. When organisations apply the same percentage increases across the board, they can find that:
Over time, that can erode the perceived value of progression and that means employees may start asking "Why take on more responsibility for only a small difference in pay?"
3. Performance differentiation disappears. Many organisations say they pay for performance but if everyone receives the same increase, the signal becomes blurred. High performers receive the same outcome as average performers. Managers struggle to differentiate meaningfully and over time, the link between performance and reward weakens. That has implications for motivation, engagement and discretionary effort.
4. Structural issues stay hidden. Across-the-board increases can also act as a temporary sticking plaster over deeper pay structure problems. For example:
A uniform increase doesn't fix those issues. It simply moves everything up slightly while leaving the underlying structure unchanged.
Let's think about why organisations fall back on ‘peanut butter' approaches. This isn't about organisations making poor decisions. In many cases, they are trying to balance multiple pressures at once: limited budgets, inflation expectations, employee relations, internal fairness, administrative simplicity.
And sometimes the simplest option feels like the least risky one. However, over time, these choices can create silent drift in the reward system. And that drift tends to show up later in more difficult ways:
Equity in Reward does not mean treating some people unfairly. It means recognising that different roles and employees may require different responses to maintain a healthy Reward structure. That could involve:
In other words, it means ensuring that people have the right ladder height to see the game.
This is exactly one of the types of work we support organisations with at Reward Heads. Often clients come to us because something doesn't quite feel right. Pay increases are happening every year, but the Reward structure isn't behaving the way it should. Our work often involves analysing pay structures and market alignment, identifying where compression or drift is occurring, reviewing how performance is reflected in pay decisions and helping organisations design more targeted and effective pay review approaches.
Sometimes the outcome is small adjustments. Sometimes it reveals bigger structural questions. But either way, the goal is to ensure that Reward decisions are intentional rather than accidental. Because peanut butter may work well on toast, but in Reward Strategy, spreading things evenly rarely solves the real problem.
If this topic resonates, or if you're wrestling with similar questions around pay structures, pay reviews or market competitiveness, feel free to get in touch with us at Reward Heads to arrange a chat at rewardsolutions@rewardheads.co.uk We're always happy to explore what might be happening beneath the surface.
Claire Williams, Consulting Director - Reward Heads