April 28, 2026
Earning a living depends on earning a “living wage.” Unfortunately, evidence continues to show many Americans are not only struggling to “get by” but might also be losing hope that they will ever “get ahead.”
What The Numbers Say
Recent surveys indicate employees are indeed losing hope on wages. Keeping in mind that the cost of living has exceeded average merit budgets for several years, consider these statistics:
- According to Resume Now, 49% of working Americans do not believe their wages will catch up with the rising cost of living. Some 32% say wages will not catch up for several years. Findings by career website Monster are even more dire, with 95% of workers feeling the same pessimism.
- Consumer prices rose 2.4% in January year-over-year while most employees are only seeing a 3% increase. That increase is before expected escalations in health care coverage costs kick in. Post-COVID wage growth has been nearly flat for several years.
- The Society for Human Resource Management’s (SHRM’s) 2026 State of the Workplace report concludes that salary is the top workplace need according to 24% of employees.
The Result: Financial Stress
Low-to-flat increases cause severe financial stress for many employees with their households stretched thin for several years. According to Resume Now, 7 in 10 workers feel underpaid, while more than one-third of employees expect their financial stress to increase in 2026 and more than another one-third expect no improvement.
Financial distress, fueled by personal economic realities plus layoff concerns due to the economy and the rise of Artificial Intelligence (AI), is forcing workers to seek additional income, often via part-time work or a side gig. According to SHRM, 42% of US employees report currently having a “side hustle” while an additional 31% report having had one in the past. According to My Perfect Resume, 72% of employees report having at least one secondary income. That supplemental revenue source could be from freelance or gig work, investments, side businesses, passive income from renters, and second jobs with a different employer.
What are Employers Doing About This?
While employers might not like workers having side hustles, they are increasingly accepting this stark new reality. Thus, many employers are implementing policies regarding supplemental work, as opposed to prohibiting it outright. Some employers also provide financial wellness programs to assist employees with personal economic concerns.
Unfortunately, however, in low merit budget times, employers are also using the “peanut-butter approach” to pay increases. What is this philosophy? As an example, all employees might get a 3% increase. Across the board. End of discussion. According to Payscale, 44% of companies are considering this in 2026.
Naturally, high-performing employees are not fans of this approach as their hard work is not really being rewarded. Under the peanut-butter approach, high performers’ pay can quickly fall below competitive market wage rates. This can lead to high turnover, loss of top performers, and reductions in service and quality levels. It’s a price some employers seem willing to bear, as they feel that paying for merit isn’t worth the time and cost of conducting performance evaluations. Even for companies that do engage in merit evaluations when merit budgets are low, the percentage increase difference can be small between performance categories.
Alternatives to The Peanut-Butter Approach
In low merit budget times, employers should consider other options to the peanut-butter approach to ensure pay competitiveness and pay equity. These might include:
- Giving a flat dollar increase based on performance rating so there truly is a dollar difference and not merely a low percentage difference.
- For employees under the salary midpoint but with satisfactory performance, giving a larger percentage increase than those over midpoint. This can help move underpaid employees closer to market levels. Or, again, use a flat dollar amount to close the gap.
- Identifying top performers and/or key positions and giving them a higher percentage or dollar increase than the peanut-butter amount for retention purposes.
The Bottom Line
For several years, due to high inflation, it has been a tough economic landscape for both employees and employers. Even when inflation cools (typically cooling the labor market as well), employers must work strategically to reward and retain high-performers and workers in key positions. Otherwise, the risks – for turnover, loss of productivity, reduction in quality and customer satisfaction, and even loss of market share – can be much more costly than providing equitable pay up front. Remember: A good performer or a worker with key skills can always find a job elsewhere.
To learn more about how Total Reward Solutions can help you compensate fairly and avoid costly risks associated with salary missteps, contact us at 317.589.8529 or reach out via our contact page.
Cassandra Faurote
About Total Reward Solutions:
Total Reward Solutions is your trusted partner for compensation services. Led by Cassandra Faurote, professionally certified Compensation and Human Resources expert and author of the book Compensation Sense 101, Total Reward Solutions offers a broad range of compensation and total rewards consulting services to help your organization attract top talent, motivate employees, and retain top performers.