AI is shifting focus from merely transforming the workplace to affecting employee compensation directly.
In the quest for funding AI initiatives, some companies are opting to reduce employee benefits and salary raises. Teradata, a global leader in cloud software, informed its approximately 5,100 employees in January that they should not anticipate annual pay increases this year. An internal memo reviewed by Business Insider indicated this decision is part of a broader budget reallocation towards AI investments.
CEO Steve McMillan provided insight into Teradata's strategic direction, emphasizing a goal of leveraging AI to gain a competitive edge by 2026. To facilitate this, the company intends to invest more in AI talent and resources, as stated in the memo. McMillan clarified that this AI funding would come from the budget typically reserved for annual salary increments.
Although Teradata did not respond to inquiries about its budgeting choices, a representative noted the company is committed to investing in AI to enhance its offerings.
Two long-serving employees shared with Business Insider that they had generally received annual raises of 2% to 4%, although there was no guarantee each year. The memo indicated that employees could still be eligible for performance-related bonuses and stock options, with the no-raise decision affecting areas where salary adjustments are not mandated by regulators.
This approach is not unique to Teradata. TTEC, a mid-sized tech and service provider, recently announced it would suspend 401(k) matches for its U.S. workforce until the end of 2026. Internal communications cited the need to divert funds toward essential AI tools and training.
The transparency with which some organizations are discussing AI-related cuts signifies a notable change, according to workplace strategist Jennifer Moss, author of "Why Are We Here? Creating a Work Culture Everyone Wants." She commented on how this candid acknowledgment could signal a cultural shift in how leadership discusses budgetary priorities.
As AI spending increases across industries, with a survey from RBC Capital revealing that 90% of 117 IT professionals expect to expand AI budgets in 2026, companies like TTEC and Teradata are navigating these challenges. AI expenditures can vary widely, with small pilot projects costing tens of thousands, while full-scale implementations can run into the millions.
Both Teradata and TTEC are dealing with recent revenue declines—5% for Teradata and 3.2% for TTEC in the past fiscal year—heightening the urgency to adapt to AI. Moss noted that while rising AI costs can pose a problem, cutting employee compensation is a conscious choice. She suggested alternatives, such as debt financing, reallocating non-essential expenditures, or modifying executive pay, rather than solely relying on workforce reductions.
For instance, Alphabet recently disclosed its intent to sell $80 billion in stock to fund AI infrastructure investments. Often, workforce compensation is cut because it constitutes the largest controllable expense, with minimal opposition from within the organization.
According to BCG's 2026 AI Radar, released earlier this year, companies plan to allocate approximately 1.7% of their revenue to AI in 2026, which is a relatively small fraction compared to overall compensation expenses.
Economist Jan-Emmanuel De Neve from Oxford University anticipates that more firms will begin making similar trade-offs as they pursue AI technologies. He noted that openly discussing compensation cuts to support AI can create a perception of job insecurity among employees.
While some companies opt for subtle reductions in benefits and pay adjustments, others link AI initiatives to layoffs. For instance, Meta downsized 10% of its workforce in connection with its efficiency and investment strategies, despite experiencing a stock surge and planning significant capital expenditures.
The trend extends beyond Meta, with other companies like Snap, Cisco, and Salesforce indicating staff reductions attributed to AI efficiencies. Teradata’s workforce has shrunk by over 21% since December, translating to about 1,400 fewer employees, a move characterized as part of its growth strategy.
Employment attorney Ellen Raim pointed out that firms are increasingly operating under pressure to demonstrate productivity gains, opting to leverage AI as a solution. This growing discourse around AI as a way to enhance productivity has led to a perception among workers that their welfare may be compromised.
Comments from industry leaders, such as Standard Chartered's CEO referring to certain roles as "lower value, human capital," underscore a troubling trend where employees are increasingly viewed as costs rather than contributors. This approach risks undermining employee trust at a time when organizations are seeking their collaboration in integrating AI tools effectively.
