Spreading the Peanut Butter: Across-the-Board Pay Hikes Are a Bad Idea

“Spreading the peanut butter” is a term used by one of my international clients to describe a general increase, the granting of an across-the-board pay rise or one-size-fits-all lump sum payment.

The simple visual of spreading a thin layer to coat a surface caught my eye as well as my ear, as I often make peanut butter sandwiches for my granddaughters – and now I stop and think whenever I’m doing it.

The concept is simple, all too simple, and therein lays the danger.

The problem with taking the simple, easy approach

At the time of the annual performance review, let’s just give everybody the same base salary increase, either as a percentage or in a pre-established amount. No fuss, no muss, no big project, and everyone is treated the same.

Sounds like an easy and uncluttered approach for being fair to the employees, right?

But “too simple” is rarely an effective solution when you’re dealing with the complexities of employee engagement, morale, productivity and pay-for-performance rewards, and especially when you’re dealing with the dubious motives behind this tactic. Yet the attractiveness of being able to simply push a button to get all these HR issues behind us (or so we think) can be compelling.

But it happens. There are advocates out there, whispering in the ears of your senior leadership, angling to use that EASY button.

When does it happen?

When the pool of available reward monies is considered too small. In the days of 2 percent merit spend, many companies felt a pressure to avoid “splitting hairs” – as the administrators would say.
When we want to grant pay or salary increases “just because.” Perhaps in times of organizational restructuring, or to combat a perceived “brain drain” of resignations, or when critics feel we have to “do something” to fix an employee problem.

Why do we do it?

It’s easy to administer. Picture the EASY button again. Now, let’s get back to work.
It saves time. Less time needed for performance appraisal forms, employee meetings, for assessment of performance against objectives, and less record keeping.

But, there are consequences

But consider the consequences – and there are always consequences — when you choose to do things quick rather than right.

High performers get the same reward as “Joe Average.” That’s probably not the sort of message you want to give your most valuable employees.
Recognition of performance is marginalized, as when small amounts are involved choosing and rewarding differences in performance is not considered worth the effort.
If you believe that rewarded behavior will be repeated behavior, diminishing rewards for high performers will likely gain you diminished performance.
That good performer who is low in their salary range? They’ll stay there until they quit. Again, not a good message.

How would you react to the peanut butter spread?

If you’re a recipient of this peanut butter spread tactic, and you’re a high performer, what is going to be your likely reaction?

Would you feel recognized for your efforts? Would you feel motivated to keep performing at high levels? Would you feel that the company has taken notice of your efforts in relation to your peers and colleagues?

Nope.

But the bean counters and administrators would be happy. They’ve already left for lunch.

On the other hand, if you were “Joe Average” and received that same peanut butter spread, how different might you react to the same questions? You might not feel as compelled to be recognized, or feel that you actually pushed yourself beyond the norm. You might just feel that everything is fine, that “hey, this is a pretty good deal.”

Personally I like a little jam with my peanut butter sandwich, and I’d wager that your high performers would too.

Call it the “pay differential for performance.” It’ll taste great.

This was originally published at the Compensation Café blog, where you can find a daily dose of caffeinated conversation on everything compensation.