When Starbucks announced flat 2% raises for all salaried North American employees in 2025, replacing performance-based merit increases, it reflected something deeper than a simple HR policy change. The move is another signal of a broader shift in American capitalism: a move away from differentiated rewards and toward uniform pay structures, government equity stakes in private companies, and changing public sentiment about economic systems, that may fundamentally reshape the innovation ecosystem that has long defined U.S. economic dynamism.
When the Commerce Department launched an investigation into Harvard University’s portfolio of federally funded inventions, it signaled that Washington is no longer content to subsidize innovation — it wants to own the results. The federal government has taken equity stakes in Intel, MP Materials, and USA Rare Earth, and now asserts ownership interests in university patents.
As professors at Boston University’s Questrom School of Business who study how economic systems evolve, we have tracked this shift closely. Our previous research, supported by the Ravi K. Mehrotra Institute, found that U.S. news coverage of capitalism has grown more positive since the 1940s, while recent government actions represent a shift toward a state-directed capitalism.
The shift in how America rewards performance may no longer be only a top-down phenomenon driven by government policy, but also a bottom-up shift within firms themselves. Together, these trends signal a retreat from tournament-style competition, where outsized rewards drive exceptional performance, toward more managed and predictable outcomes, potentially weakening the very incentive structures that have long fueled American innovation.
The innovation engine
Economic research has long established that differential rewards, what economists call tournament theory, create powerful incentives for innovation and productivity. When employees see clear pathways from exceptional performance to exceptional rewards, they are more likely to pursue the harder sale, develop the smarter process, or champion the bolder idea.
The American economy has historically thrived on this principle. Silicon Valley’s equity compensation models, Wall Street’s bonus structures, and corporate America’s merit-based advancement systems all operate on the premise that extraordinary effort should yield extraordinary returns. This is not merely about fairness; it is about signaling. High performers need clear signals that their contributions matter. That is what attracted the world’s most ambitious talent to America and fueled the country’s innovation ecosystem.
The spread of uniform raises
Starbucks is not alone. According to Payscale’s 2026 Compensation Best Practices Report, about 44% of U.S. employers now plan to implement uniform, across-the-board wage increases, so-called “peanut butter” raises, spread evenly rather than concentrated on top performers. About 16% are adopting this approach for the first time in 2026, and another 18% are actively considering it, while 9% say they already employ the pay strategy.
The motivations are straightforward. Economic uncertainty has overtaken labor competition as the primary driver of compensation decisions, with 66% of employers citing it as their reason for holding back, according to Payscale. Merit-based pay has also drawn criticism for subjectivity and bias. For companies facing tariffs, potential recession, and rising costs, simplifying raises reduces administrative burden.
Yet compensation professionals see a deeper risk. A recent analysis found that when raises are no longer tied to performance, high-performing employees may question whether exceptional contributions are worth the effort. The longer-term risk includes disengagement and attrition among top talent, and when your best people leave, innovation follows them out the door.
An instructive parallel abroad
For anyone who studies comparative economic systems, peanut butter raises are not new. They are, in fact, the norm in much of the developed world. In Germany, for example, sector-level collective bargaining covers the majority of workers and yields standardized wage agreements. Japan offers a relevant historical case. Its postwar compensation system was built around seniority-based wages and annual “base-up” increases negotiated through the shunto spring wage offensive, essentially an institutionalized version of peanut-butter pay. For decades, raises were spread broadly across the workforce regardless of individual performance.
That system coincided with Japan’s prolonged economic stagnation. An OECD study on Japan’s labor market recommended shifting to more flexible employment and wage systems based on performance rather than age, arguing this would enable better utilization of human capital. Japan has only recently begun reversing course: 2024 shunto settlements exceeded 5% for the first time in over three decades, with a growing emphasis on performance-linked pay. While not the sole cause, prolonged compression of wage incentives was one factor in a broader environment where risk-taking and productivity growth slowed.
Shifting public attitudes
These corporate changes are occurring alongside measurable shifts in how Americans view their economic system. A 2025 Gallup poll found that 54% of Americans view capitalism positively, down from 60% in 2021. The decline was sharpest among Democrats and independents.
Generational differences are pronounced. A 2025 Cato Institute/YouGov survey found that 62% of Americans aged 18 to 29 hold a favorable view of socialism. In a recent interview with The Free Press, Peter Thiel, the billionaire venture capitalist, argued that young people are less pro-capitalist rather than pro-socialist, because the system feels unfair to those burdened by student debt and priced out of housing, and the political establishment has failed to address the underlying grievances.
The November 2025 election of Zohran Mamdani, a self-described democratic socialist, as mayor of New York City demonstrated the political dimension of these survey trends. His voters were largely young renters and college-educated transplants. From a different vantage point, BlackRock CEO Larry Fink opened the 2026 World Economic Forum in Davos with a complementary warning from the opposite end of the spectrum by arguing that prosperity must be judged by how broadly it is shared, not by GDP or market capitalization alone. Fink warned that if artificial intelligence does to white-collar work what globalization did to blue-collar jobs, the consequences will be severe unless capitalism evolves.
A converging pattern
What connects peanut-butter raises to government stakes in companies, to Mamdani’s election, to Fink’s Davos speech? Each reflects a growing impulse, risk mitigation through outcome compression. The possibility of exceptional returns (and failures) for more predictable, managed results. Corporations are moving from differentiated rewards to flat distributions. Governments are moving from arm’s-length subsidies to direct ownership. And voters are moving from market faith to demands for redistribution.
None of these shifts is irrational. The 2008 financial crisis, the pandemic, supply-chain disruptions, and a widening wealth gap have made stability feel more urgent than dynamism. But America’s competitive advantage has always rested on its willingness to reward risk-taking and tolerate failure in pursuit of breakthrough innovation.
What can be done?
There is a simple method of reducing the number of companies giving peanut butter raises. Currently, the SEC mandates all public companies disclose executive compensation annually in a Def-14A form. The SEC should require each Def-14A to include the average raise, plus a table breaking down the range of raises to all non-executive employees. If a company also gives rank-and-file workers stock or options, a table listing the average amount and ranges should be included. Revealing this information ensures market forces diminish the number of companies offering flat reward structures.
America’s innovation edge depends on its willingness to reward risk-taking and differentiate performance. Flatten the reward structure in government and the workplace at the same time, and you risk flattening the very ambitions that push societies forward. A nation competing in AI development, energy transition, and advanced manufacturing cannot afford to make “average is acceptable” its operating principle.
