Cutting employee compensation to invest in AI could backfire

• Key Insight: Learn why prioritizing AI spend over employee pay may backfire strategically.
• What's at Stake: Cost-cutting for AI could erode engagement, productivity, and long-term innovation capacity.
• Supporting Data: Survey: 54% plan compensation cuts; 92% prioritize AI over employee satisfaction.
  Source: Bullets generated by AI with editorial review

Organizations are in such a rush to win the AI race that they're willing to sacrifice employees' paychecks to do it — but that business-minded thinking is flawed. 

By the end of 2026, more than half of organizations say they will reduce labor costs to pay for AI, according to a recent survey from workplace insights platform ResumeBuilder, with 92% saying AI investment is a higher priority than employee satisfaction. However, that strategy may lead to many obstacles down the line.

"Their mind is on how to reduce expenses so that they can afford to spend more money on more growth opportunities like AI," says Sujay Saha, founder and CEO of Cortico-X, a business strategy and transformation consulting firm. "But we are looking at the problem the wrong way if we think technology is going to change the paradigm and take humans out of the loop. In fact, humans are more important today than ever before."

Read more: Lawsuit calls out AI hiring practices that many employers use

ResumeBuilder's survey revealed that 54% of organizations plan to cut employee compensation — including base salaries, raises, benefits and equity and stocks — and 26% are considering increasing layoffs. Seventy-one percent of organizations are executing those cuts by shifting towards performance-based raises tied to individual results. Eleven percent will give below-inflation raises across the board, and 14% will give uniform raises regardless of performance, which can disincentivize top performers. 

"It reduces the motivation from your workforce," Saha says. "Now you're expecting disengaged, highly stressed employees to work more and keep your company stable. That's usually a recipe for disaster."

Much of the time, the downstream challenges aren't even worth it, according to data from cloud storage website DropBox, with 48% of executives admitting that AI adoption at their organizations has been a massive failure and that they've seen minimal ROI from both generative AI and AI agents. Instead, companies should be helping employees develop the skills and mindset they need to tackle new technological advancements happening within their ranks. 

Striking a balance between employees and AI

If an organization is facing a particularly strict budget, Saha recommends pausing most hiring unless it's for truly strategic roles to avoid cutting headcount. Transparent communication, along with educating employees, will also be critical. Much of the money leaders are investing in AI or new technology goes toward programs and tools that rely on employees to operate effectively, so it's key to ensure there is a budget upskilling or reskilling programs and resources. Saha also suggests investing in AI little by little as opposed to one large overhaul so as to minimize preemptive and maybe unnecessary cuts. 

Read more: Report suggests need to improve advisers' AI experiences

"Just because we're doing things differently and in a more modern way that is moving people away from certain positions doesn't mean those people are not needed in other areas," Saha says. "Because the truth is that every role is changing and employers are still figuring out how to make it all fit." 

Despite urging leaders to seek new ways to keep talent in their AI integration process, Saha acknowledges that some turnover and terminations are unavoidable. However, there is room to make the process as smooth and intentional as possible. 

"It's extremely important for leaders to make employees feel appreciated and help them understand that this is not some easy fix," Saha says. "This is a transformation that we all are going through and they need to be a part of it."