“Peanut butter” pay raises are out, as employers shift to merit-based hikes
(CBS NEWS) – Sources from CBS News say that more companies are moving away from broad “peanut butter”-style pay raises for workers in favor of merit-based and other kinds of compensation sweeteners for top employees, according to new insights from Payscale.
The trend toward rewarding strong individual performers within a business marks a shift away from companies spreading pay hikes evenly across their workforces. Just 32% of employers say they are planning a standard, across-the-board increase for workers in 2027, down from 36% who did so in 2026, according to Payscale, a compensation and benefits software company.
“We are seeing organizations realize that they need to deploy pay strategically,” Ruth Thomas, Payscale’s chief compensation strategist, told CBS News. “They need to think about business transformation, and part of driving that is allocating pay budgets differently.”
The findings are based on a Payscale survey of roughly 1,300 human resources and compensation executives in May and June.
How big a raise in 2027?
For 2027, employers plan to raise their base pay by an average of 3.5%, up a meager 0.1 percentage point from this year’s hike, according to Payscale’s data.
“The size of the compensation budget pie is not getting bigger, but there’s a shift in how employers are choosing to slice it,” Thomas said.
Such pay increases will keep worker pay ahead of inflation, but perhaps not by much, she added. Consumer prices rose at an annual rate of 3.5% in July, according to recent government data, although economists expect inflation to cool in the second half of the year and into 2027.
Employees in some industries could see considerably larger — and smaller — raises than 3.5%, according to Payscale. For example, businesses in the aerospace and defense sector are planning an average base pay increase of 4.5% for 2027, while pharmaceutical companies are planning on 4% pay bumps.
Here are the average pay hikes workers in different industries can expect in 2027, according to Payscale:
- Aerospace and defense: 4.5%
- Business services: 4.5%
- Legal services: 4.2%
- Pharmaceutical and biotechnology: 4%
- Construction: 3.9%
- Distribution, logistics and transportation: 3.8%
- Architecture, engineering and design: 3.6%
- Manufacturing: 3.6%
- Education: 3.5%
- Energy and utilities: 3.5%
- Financial services: 3.4%
- Food, beverage and hospitality: 3.4%
- Insurance: 3.4%
- Real estate, rental and leasing: 3.4%
- Technology: 3.4%
- Consumer goods: 3.3%
- Media, sports and entertainment: 3.3%
- Nonprofit: 3.3%
- Retail: 3.3%
- Healthcare and social assistance: 3.2%
- Government: 3%
- Telecommunications: 2.5%
