“Peanut butter raises,” where everyone gets the same even spread, or percentage raise, seems to be the new craze in HR departments. That’s according to a recent article in Fortune Magazine.
At first glance this may seem to be an effective way to give a raise and reward staff. It sure is easier to give everyone the same percentage raise, just like spreading smooth peanut butter on slices of bread. No fuss. No muss. No need either for long performance evaluation sessions. Everyone in management is a happy camper because of all the time it saves.
But the ease of delivery is only a short-term gain. Research shows “across the board” raises are NOT an effective long-term strategy. The benefit of giving everyone the same percentage raise was actually debunked by a very famous management article, over 50 years ago, in 1975. It’s title “On the Folly of Rewarding A, While Hoping for B” by Steve Kerr. Why is an across the board raise a bad idea?
Fire Alarm Bell #1: Performance suffers.
It is important to reward the behavior you want (behavior “B” noted by Steve Kerr). If you don’t, you’ll get any behavior the other chooses (behavior “A” noted by Steve Kerr). Beware of giving everyone the same reward. There is little financial incentive to stretch oneself or try to do the best possible behavior. Everyone gets the same reward, no matter how hard they work. So, why work harder then you have to. Mediocracy is the result. You over reward and motivate the lower performers to stay. You under reward and demotivate the higher performers and they are more likely to leave. For some, it’s not even about the amount of money. It’s about the inequity of the reward system.
Fire Alarm Bell #2: If you give everyone the same reward, the best performers will leave because they can get better jobs and pay elsewhere. Who stays? The lower performers, because they can’t get a better job and pay elsewhere. The outcome? Lower performers stay. Higher performers leave. Mediocracy, again, is the result.
What is the reason some organizations, like Starbucks, is embracing this “peanut butter raise” trend? The Fortune Magazine article suggests the reason for the change is economic concerns regarding 1) inflation, 2) the impact of tariffs, 3) the economic uncertainty these bring, and 4) a possible recession. But the same identical reasons are why we need to double down and give pay raises effectively tied to performance instead. We want our top performers to stay and be highly motivated to excel, especially in times of uncertainty, since they are the ones most likely to help us succeed when times are tuff.
There are four great reasons to buck this “peanut butter raise” trend.
Fire Hose #1: Tuff Times Require Better Staff
Would it be better to have higher performing staff in more difficult times or lower performing staff? Obviously, the former. You want those better performers on your organizational team to help put out any fires and not run and hide when things are stressful and heating up.
Fire Hose #2: Tuff Times Require Better Budget Management
Required and optional benefits (social security, health care, etc.) are more expensive the greater your staff head count. Additionally, a little more employee pay given to a top performer goes much further in getting results than having more low performing staff needed to get the same results. Budgets get stressed when we pay more low performing staff, when we can get the same, or better results, from fewer high performing staff.
Fire Hose #3: Tuff Times Require Better Resource Management
Having fewer, but higher performing staff, allow organizations to have fewer resources such as support staff, less complicated communication systems, less physical space, slimmer organizational hierarchies, and other such resources.
Fire Hose #4: Tuff Times Require Better Leadership
Having more highly performing staff allows organizations to have more and better opportunities to groom and promote and get higher quality leadership. Additionally, if your lower organizational levels have fewer quality staff, when you promote quality staff from those levels, as higher level management retire or you expand services, you have even fewer high-quality staff left to do the necessary operational tasks.
In summary, giving across the board raises, “peanut butter raises,” is a bad idea. The results are your lower performing staff are more likely to be motivated to stay, while your higher performing staff or more likely to be demotivated and leave. Having better staff to perform organizational tasks results in better performance to meet client needs, better budget management, better resource management, and better leadership. Bottom line? Concepts from 1975 result in a much better solution than concepts over 50 years later. It is better that we don’t follow the folly of rewarding A, while hoping for B. Let’s just reward B, the behavior we want and need.
