Should a high performer on a team get a bigger raise than everyone else, even when the work is deeply collaborative? Compensation researcher Armin Trost frames this as a genuine dilemma rather than an easy call, and it sits at the center of every compensation strategy decision once a team starts working on ambiguous, high-uncertainty problems where outcomes depend on everyone pulling together. Differentiate pay too aggressively and collaboration suffers. Don’t differentiate at all and the best people start to wonder why their extra effort doesn’t show up in their paycheck.

The Core Tension: Individual Merit vs. Team Collaboration

Picture a team facing a high-uncertainty task: the path to the outcome isn’t fully defined, the manager is acting more like a coach than a director, and team members depend heavily on each other to get the work done. Within that team, a few people are clearly carrying more weight. They are strategically important and hard to replace. The question is whether to single them out with a merit increase, or reward the team as a whole regardless of individual contribution.

Both positions have a real argument behind them. Differentiating pay signals that effort and impact are noticed and rewarded, which matters most to the people an organization can least afford to lose. Rewarding the team equally protects the collaboration that the work actually depends on, since complex, interdependent tasks usually require people to share information freely rather than compete with each other for credit.

Why 2026 Merit Budgets Make This Tension Harder, Not Easier

This dilemma is not just theoretical. According to WorldatWork’s 2025-2026 Salary Budget Survey, the mean budget dedicated specifically to merit increases is holding steady at 3.2% for both 2025 and 2026. With a budget that tight, real pay differentiation gets mathematically difficult: giving a top performer a 6% increase while peers get 3% effectively requires someone else on the team to receive close to 0%, which is its own fairness problem.

Despite that constraint, WTW’s research on 2026 salary planning shows a clear divide by industry: in software and consulting firms, a significant share of companies still grant high performers between 150% and 300% of the average increase given to their peers, while healthcare organizations show the smallest gap between average and top performers. The dilemma plays out differently depending on what kind of company is making the call, and how tight its overall budget is.

The Case for Differentiating High Performers

If an organization does not differentiate pay for its highest performers, two risks follow. First, the people most able to find a better offer elsewhere are also the most likely to leave when they conclude that extra effort isn’t reflected in their compensation. Second, flat pay regardless of contribution can quietly attract and retain lower performers, since the organization has signaled that performance isn’t really what determines reward.

Pay differentiation also tends to track organizational hierarchy in a related way: roles with greater responsibility usually carry a wider pay band than roles lower in the structure, which is a related but distinct topic covered in Why Employee Benefits Matter as Much as Salary. That structural pay gap creates aspiration for people to grow into bigger roles, but it can also clash with a team culture built around the idea that everyone’s contribution is equally valued.

The Case for Rewarding the Team

Paying for individual performance on a highly interdependent team can quietly turn colleagues into competitors. When people believe their pay depends on standing out individually, they have less incentive to share information, cover for a struggling teammate, or take on unglamorous work that benefits the group but isn’t easily attributed to one person. Over time, that competitive dynamic can erode exactly the kind of collaboration that complex, ambiguous work actually requires.

Equal rewards remove that competitive pressure, but they carry their own risk: high performers who consistently see their extra contribution treated the same as everyone else’s average contribution may eventually scale back their effort, reasoning that the additional work isn’t being recognized either financially or otherwise.

What Pay Band Data Shows About How Differentiation Actually Works

One way organizations differentiate without relying purely on annual merit cycles is through seniority-based pay bands, where the band itself reflects increasing scope and responsibility rather than a single subjective performance score. The table below shows current gross annual base salary benchmarks for a Human Resources Business Partner role in Spain by seniority level, drawn from the TalentUp Salary Platform (Spain, Human Resources Business Partner, data retrieved 26 June 2026).

The roughly 75% spread between junior and senior level shows that a well-structured band can absorb a meaningful amount of pay differentiation before a single merit cycle even comes into play. Organizations that lean more heavily on level-based banding, and less on ad hoc individual merit awards within a team, often find it easier to reward growing responsibility without forcing an uncomfortable choice between two equally talented teammates on the same project.

Building a Fairer Process: Committees, Criteria, and Transparency

Whichever direction an organization leans, the process matters as much as the outcome. People are highly sensitive to fairness, and a merit decision is far more likely to be accepted when it comes from a neutral, structured process rather than a single manager’s individual judgment. A compensation committee, calibration session, or structured peer input process helps ensure that a merit increase reflects a consistent standard rather than which manager happens to advocate hardest for their team member.

This is also where the Pay Transparency Directive (Directive (EU) 2023/970) becomes directly relevant. The Directive requires employers operating in the EU to set pay using objective, gender-neutral criteria, which pushes naturally toward documented, criteria-based differentiation and away from informal, manager-by-manager merit decisions. A compensation committee that can point to clear, consistently applied criteria is far better positioned to defend a pay decision, whether to an employee who feels overlooked or to a regulator asking how a pay gap arose.

Practical Approaches That Reduce the Tension

A few practical levers can soften this dilemma rather than forcing an all-or-nothing choice. Narrower pay bands, rather than broad ones, give organizations more natural room to reflect differences in scope and responsibility without relying entirely on a single annual merit number. Competitive base pay reduces how much weight any one merit cycle has to carry, since employees aren’t depending on that single moment to feel fairly compensated.

Non-financial recognition, public acknowledgment, stretch assignments, faster paths to promotion, can also differentiate high performers in ways that don’t directly pit teammates against each other over the same fixed merit pool. None of these approaches eliminates the underlying tension between individual recognition and team cohesion, but together they make it easier to manage without either ignoring top performers or undermining collaboration.

It also helps to separate the timing of individual recognition from the timing of team-based rewards. A team that hits a shared milestone can be celebrated and rewarded together in the moment, while individual contributions are still assessed separately during the regular performance and merit cycle. Keeping these two signals distinct reduces the chance that an individual award gets read by the rest of the team as a judgment on everyone’s collective effort.

The bottom line is that there is no universally correct answer to whether high performers on a collaborative team should be paid differently from their peers. Treating everyone identically risks losing the people an organization can least afford to lose; differentiating too sharply risks turning a collaborative team into a group of individual competitors. The organizations that manage this best don’t pretend the tension away. They build a transparent, criteria-based process, anchor pay bands to real market data through tools like the TalentUp Salary Platform, and accept that the right balance will look different depending on how interdependent the work actually is.

Frequently Asked Questions

Should high performers always get bigger merit increases than the rest of the team?

Not automatically. On highly interdependent teams, aggressive individual differentiation can undermine the collaboration the work depends on. The right level of differentiation depends on how much the team’s success relies on shared effort versus clearly separable individual output.

Why are 2026 merit increase budgets making pay differentiation harder?

With mean merit increase budgets holding at 3.2% for 2026, giving a top performer a meaningfully larger raise than their peers often requires giving someone else a very small or zero increase, which creates its own fairness and retention risk within the team.

How can companies make merit pay decisions feel fairer to employees?

Using a compensation committee, calibration process, or structured peer input rather than a single manager’s individual judgment helps. Clear, consistently applied, documented criteria also make a decision easier to accept and easier to defend under pay transparency requirements.

What alternatives are there to large individual merit increases?

Narrower pay bands tied to seniority and scope, competitive base pay that reduces reliance on any single merit cycle, and non-financial recognition such as stretch assignments or faster promotion paths can all differentiate high performers without forcing a sharp individual pay split within a collaborative team.

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