New Salary Strategy Sees Bosses Rewarding Top Employees With Bigger Raises

Didn't get a pay bump this year? Maybe that's because you weren't the best. 

After years of doling out so-called "peanut-butter raises" that spread modest pay increases around to all staff, more bosses would rather devote their budgets to giving chunky wage hikes to their stars, according to a recent Korn Ferry analysis. The reasoning, compensation experts say, is that employees with in-demand skills can pick up and leave if they don't feel valued. For everyone else, at a time of white-collar layoffs, simply getting to keep a job is its own reward.   

The frantic race to retain coveted talent in booming sectors like banking and AI is helping managers justify unequal salary decisions. Earlier this month, Meta Platforms Inc. slashed equity-based awards for most of its staff, as the tech company focuses resources on hiring AI researchers and building data centers. Some firms on Wall Street, where bonuses are historically rewarded to the best performers, doubled down. A banner year for JPMorgan Chase & Co., Goldman Sachs Group Inc. and other large lenders has led to huge payouts for rainmakers, but not underperformers. And in Europe, HSBC Holdings Plc handed some bankers little or no bonuses as the British lender shifted to a more hard-edged, "eat-what-you-kill" stance. 

"The market for top talent is very, very competitive," said Iwan Barankay, an associate professor of management at the Wharton School of the University of Pennsylvania, who studies workplace incentives. "When somebody can show any kind of evidence that may suggest they are extremely good, they immediately can threaten the company, implicitly or explicitly, to leave."

The race for talent despite a rise in economic uncertainty is evident in the private-credit industry. In the fastest-growing segments, top experts are commanding pay packets of $2.5 million and above. Hiring is expected to stay strong in 2026 as "dry powder" remains ample, insurance capital surges into the space, and investment banks seek to keep pace with competitors. 

During the post-Covid labor squeeze, the peanut-butter strategy was an invaluable tool for employers looking to recruit and retain employees at scale. And lots of companies are still giving out broad raises. According to Korn Ferry data,  nearly three-quarters of employers stuck with peanut-butter pay in 2025, with half raising salaries for nearly all staff.

Now, the message for non-stars is that even raises in line with inflation aren't a given, as firms implement AI to help improve efficiency and reduce headcount. 

The shift comes amidst a jobs backdrop in which employers have the upper hand. Last year was the worst for hiring outside of a recession since 2003. The labor market stabilized somewhat earlier this year, but economists still expect hiring to remain generally sluggish in 2026. This has created an environment in stark contrast to that of just a few years ago, when it felt as if employers were doing anything they could to keep staff. Now, the message from many firms is a harsh "take it or leave it."

The differentiated salary practice is evidence of an emerging two-tier system at work, in which companies heap the biggest rewards onto their shiniest stars. While base salaries are expected to rise by about 3.5% this year in the US and other wealthy countries, according to Korn Ferry, that's in aggregate. Most individuals won't see that sort of bump. Deeper in the numbers - and the C-suite conversations -  a dichotomy is emerging, with managers under pressure to increase profitability, offload underachievers and get more productive with the help of AI.

The competition for top talent is pushing firms to reimagine the ways they distribute pay. While peanut-butter raises remain the preferred option for 83% of employers, according to data from consultancy Mercer, a softening labor market is reducing its appeal. Recent data from Mercer on overall salary budgets show that US employers plan to hold total pay increases at 3.5% this year, including zeros for some staff - in line with actual increases reported last year. Data from Willis Towers Watson show a similar lack of growth. In an unsteady economic environment, firms are less willing to increase fixed salaries and long-term costs.

Spot bonuses have become more common as a result, but with limited upside for workers and companies. CVS Health Corp. boosted bonuses by 42.3% above baseline levels after better than expected profitability in 2025. Appealing as a big bonus might be, though, most employees would rather lock in the longer-term guarantee offered by a pay raise.

Moving away from the peanut-butter strategy is part of a broader trend of employers looking to make pay decisions based on skills and talent development as well as market competitiveness.

"If I'm a top performer and I'm getting the same 3.5% raise as someone who I view as just mailing it in, I'm probably thinking about floating my resume," said Tom McMullen, who leads Korn Ferry's North America total rewards group. Differentiated compensation - McMullen calls it "chunky" - is a form of insurance against that risk.  

Over half of respondents in a separate Korn Ferry report see "skills-based" remuneration - where compensation is linked to abilities rather than roles - shaping their rewards strategies in the near term. Over a third expect to see more "athlete-like" pay, in which firms reward superstars a lot and less exceptional talent a lot less, much like a professional sports team might. 

Ariel Schur, chief executive officer of boutique recruitment firm ABS Staffing Solutions in New York City, says the current crop of top-shelf job candidates come with high expectations. 

"They know they're a little bit more in the driver's seat," Schur said. "They will say, point blank, 'This is what I'm seeking. This is what I need to make.'"

Granted, that talent will be expected to deliver. High salaries, at least in theory, come with higher expectations to work more or to be more available. 

Schur says both candidates and hiring managers are becoming "extremely, extremely selective" in negotiations, with small details that might once have attracted little attention becoming sticking points in the bargaining. Top candidates are asking for full transparency on earning potential, defined performance metrics and work-from-home flexibility built into contracts, Schur says. She added that employers are putting candidates through multistep interviews and, increasingly, personality testing.

Managers are also using technology to help assess employee performance and allocate pay based on factors ranging from the internal importance of their role to their market competitiveness to their flight risk, according to Jack Jones, a principal and senior compensation consultant at Mercer who is tracking the rollout. Software firm Syndio's "decision intelligence" service, for instance,  draws on a company's pay philosophy, customer benchmarks and external market data to inform its pay recommendations. As a result, employers are better equipped to judge whether paying out a big raise is even worth it.

"What we're starting to see in this cycle is really a dichotomy between peanut-butter spread organizations and what I'm calling a tech-enabled merit process," Jones said.

Still, dependable staff who deliver but who aren't clocking big pay bumps are getting frustrated. 

One chemical engineer at a mid-size design company in Houston said he had started looking for other jobs after his firm promoted him but failed to give him a significant pay bump. He got another offer with the potential for much higher pay, but only in the form of prospective bonuses rather than a guaranteed salary increase. The engineer, who didn't want to be named discussing sensitive personal information, ultimately decided to stay at his current firm. But he said he had been left feeling burned out. 

In Dallas, receptionist Kiley Patterson says she is grateful for the 5% raise she was awarded by the medical company she works for. The 25-year-old watches TikTok videos to learn about how to navigate career conversations at work and says she was a little surprised when HR wrote to congratulate her on a raise she never had a chance to discuss. Still, Patterson says she loves her job and is proud of her accomplishments over the past year. 

"Not to brag or anything," she said. "But I really hit it out of the park."

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)