Companies Adjust Compensation Packages to Fund Artificial Intelligence Investments Amid Increased Spending

US Companies Prioritize AI Spending Over Worker Compensation

Artificial intelligence is no longer a threat confined to job displacement. It has now begun to affect the pay packets and benefits of workers who still have employment, as companies across the US start openly redirecting compensation budgets towards AI transformation, Business Insider has reported.

Teradata, a global cloud software company with approximately 5,100 employees, has informed its workforce that it will not be providing annual salary increases this year. This decision is outlined in an internal memo seen by Business Insider, which was written by the company's chief executive, Steve McMillan. McMillan stated that Teradata's focus for 2026 is to "win in the market with AI," and that achieving this goal requires increased investment in AI talent and expertise. To fund this investment, the company will be reallocating the budget from 2026 annual salary adjustments.

According to an internal memo, employees may still receive performance-based bonuses and equity shares. The decision applies to staff in countries where regulators do not require market-aligned salary adjustments.

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Teradata is the second company Business Insider has reported is openly telling employees that it is prioritizing AI spending over workforce investment. TTEC, a midsize technology and services firm, recently paused 401(k) matches for its US employees through the end of 2026. This decision was made to help fund the tools, training, and capabilities required for its AI ambitions.

This trend represents a notable shift in workplace communication, according to Jennifer Moss, a workplace strategist and author of “Why Are We Here? Creating a Work Culture Everyone Wants.” The directness with which corporate leaders are now naming AI as the reason for scaling back employee compensation is a significant change.

Recent survey data from RBC Capital found that 90% of respondents planned to increase AI spending in 2026, spanning companies with annual revenues ranging from under $250 million to more than $25 billion.

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The costs of AI adoption vary considerably, from tens of thousands of dollars for small pilots or basic integrations to millions for enterprise-scale transformations. These costs are landing at a moment when many businesses are already operating under tighter budgets, driven by inflation, tariffs, and supply chain disruptions.

Moss noted that while AI costs may be rising, cutting worker compensation is a choice rather than a necessity. She stated that transformations can be financed through other means, including taking on debt, reallocating nonessential spending, adjusting executive compensation, phasing investments over time, or accepting lower margins for a defined period.

According to BCG's 2026 AI Radar, a survey of 2,360 global companies released in January, businesses expect to spend approximately 1.7% of revenue on AI in 2026.

Economists warn that the long-term workforce consequences of prioritizing AI spending over worker compensation could be severe. Jan-Emmanuel De Neve, an economist and director of Oxford University's Wellbeing Research Centre, expects more companies to make similar trade-offs as they pursue AI adoption.

Compensation cuts represent the less severe end of a wider spectrum of workforce changes being linked to AI. Several major companies have tied staff reductions directly to their AI strategies. Meta laid off 10% of its workforce in May, linking the decision to a drive for efficiency and the need to fund investment. The company had previously said its capital expenditure for 2026 would range from $115 billion to $135 billion.

Teradata's own headcount has fallen by more than 21% since December 2023, a reduction of approximately 1,400 people that the company attributed to its growth strategy, according to company filings.