Why are across the board raises a poor compensation habit?

As Andrew suggests, when inflation is high, across the board pay increases can be justified. But the question refers to the "habit" of doing this.

If across the board increases are an annual event, the practice may spring from a wish to be "fair". Fairness is often equated with sameness. In fact, treating everybody the same with respect to compensation increases, regardless of performance, year after year, punishes superior performers, and demotivates them.

It's hard for me to say that I value results when I reward length of service, or seniority. Good performers will soon notice the disconnect, and decamp.

Unless everyone is performing at the same level and in the same position relative to the market compensation for their position you are just spending more money without leveraging performance or addressing internal and/or external equity issues.
What is your upside?

Across the board raises, other than COLA, are for the most part a thing of the past. It sends the wrong message: no matter how little or how much you do, you'll get the same raise--so why work hard?? It also addresses the entitlement mentality--i.e. 'I'm entitled to a raise because I worked here since the last raise'--which lacks the connection of raise to performance.

Today's market requires that your high performing talent be compensated for their skills and capabilities. As a result they may earn greater comp and promotions. Called Pay-for-Performance, its geared to keeping hi potential talent, while ensuring all employees are paid fairly/appropriately (e.g., COLA). So today, if you want to raise your income you must apply yourself to your work (perform). The days of across the board once-a-year raises are long over as is entitlement.

i call this the peanut butter principle.

The reason across the board raises are referred to as a 'peanut butter' approach is that you spread the rewards thinly and evenly across the organization.

The problem with this approach: If compensation is a performance incentive tool, across the board raises negate the incentive because there's no extra reward for high performance and no penalty for low performance.

I think Caty hit on the problem. Across the board raises are "easier" to administer. Most, if not all, administrative initiatives are crafted for ease of administration, not efficacy.

That said, i am one of the people that support at strict meritocracy. I don't believe in "cost of living" raises and I do not support increases in compensation for anything except performance.

Giving everyone 3% or whatever each year becomes an entitlement and does nothing to motivate people to develop their skills or make an increased contribution to the organization.

It assumes everyone needs the same increase, deserves the same increase and should stay in the same relative position. It ignores individual merit, treats all as identical production units and says that no person and no job has any greater value than any other. It is so equal that it is completely unfair, as well as unrealistic.

I'd love to be paid according to what I spent (cost of living) instead of by the value of my job and per my personal performance sustained over time. Even better, I'd like to be paid according to Donald Trump's COL! Yeah, that's the ticket. Pay me HIS cost of living. That's as reasonable as using the national or even closest major city COL index, of which there are many varients, all of which are relatively meaningless except as a measure of very general change.