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

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

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

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

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.

Building a Fairer Process: Committees, Criteria, and Transparency

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

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.

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 total salary increase budgets around 3.5% in 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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