Industry Insights: Elevating Compensation with AI

A recent Connex Partners panel explored compensation planning and its use as a lever for employee retention, satisfaction, and productivity. Panelists discussed how success largely hinges on alignment between pay structures, growth strategy, and shifting employee expectations, and in truth, it’s really that last component that can be the most volatile in today’s rapidly changing landscape. 

According to PwC, more than 70% of US companies use AI in at least some capacity, with 54% using generative AI specifically as of November 2023. The rush to apply these new tools in novel ways has led to concerns among employees, many of whom are worried about their place in this new era of corporate productivity. The general unease employees experience is only worsened by ever-creeping inflation and financial pressures, culminating at the end of Q1 2024 in the lowest level of consumer confidence in nearly two years. 

Interestingly, these two simultaneous concerns bring us to a rather unique situation: employee financial woes can be partially addressed through better compensation planning but crossing that hurdle will likely require the strategic use of AI-enabled tools. While improvements in compensation alone won’t be enough to assuage employee concerns, the silver lining is that AI-enabled tools will give HR teams the space, time, and energy they need to better engage their workforces and their anxieties. 

Given the impact AI will have on reshaping compensation and its related functions, we wanted to provide some additional insight into the ways Connex Community Members are leveraging it. From personalized compensation strategies to automated processes and competitive positioning, AI is revolutionizing how our Members attract, retain, and motivate their talent. 

Predictive Compensation Analytics

AI-powered predictive analytics can offer significant advantages for compensation planning versus their more static counterparts. Large datasets of historical compensation trends, attrition rates, business and headcount growth projections, and labor market trends can all be fed into AI algorithms to generate detailed, predictive insight. From there, HR teams have the information they need to proactively implement multi-year retention strategies, base compensation changes, compression adjustments, and other alterations. Additionally, AI-driven predictive analytics enable organizations to better benchmark their salary structures against industry standards and maintain a truly competitive position that attracts and retains top talent. 

Moreover, modeling the impact of pay adjustments using predictive analytics allows HR executives to make informed decisions about budget allocations – the fewer surprises there are, the more value HR has as a strategic arm of the business. When the unexpected does occur, predictive insights by AI-based analytics position HR leaders to be more agile and timely in their responses. By forecasting compensation trends across different locations, roles, and departments, HR leaders can strategically plan for future needs and align compensation strategies with broader organizational goals in mind. 

Personalized Compensation Planning

Personalized compensation strategies driven by AI offer a transformative approach to enhancing employee engagement and fairness within organizations. By harnessing AI capabilities, HR executives can tailor compensation guidance to individual employees based on their performance, career trajectory, and personal preferences. This includes customizing incentive plans and bonuses to align with specific motivators unique to each employee, thereby boosting morale and productivity.

This is particularly powerful in conjunction with AI-powered chatbots, which can recommend optimal benefit choices tailored to employees' needs and circumstances. While not compensation in the strictest definition of the word, it becomes clearer with each passing year that these offerings can truly make or break recruitment and retention efforts. Employees – especially those that make up younger age demographics – expect support in various aspects of their lives, but the more options that are added, the more difficult it is to choose the “right” ones. Without investing in tools like chatbots, organizations run the risk of dramatically increasing their HR support ticket volumes. 

Lastly, AI algorithms can help audit compensation data to identify and rectify pay equity gaps across various demographic factors like gender, race, and age. This proactive approach not only ensures fairness but also mitigates potential legal and reputational risks for the organization. There must be a human element to this process to prevent the accidental widening of equity gaps, but overall, these tools provide an excellent way to create a culture of fairness and transparency based on actual, objective measurements.

Realtime Competitive Alterations

AI-powered tools can do more than just accurately predict trends – they’re actively revolutionizing how companies position themselves each day. By tracking real-time compensation data sourced from surveys, job sites, and public platforms, AI-powered intelligence can more readily and easily benchmark current rates against competitors. Click-through rates and other candidate engagement factors can be added in, giving HR leaders what they need to alter positioning and compensation package attractiveness on the fly. AI can even facilitate the adjustment of compensation structures themselves based on evolving market dynamics, ensuring that organizations can stay one step ahead of industry shifts. This data-driven approach empowers organizations to make informed, strategic changes that move the needle on attracting and retaining top talent. 

Overall Compensation Efficiency

We’d be remiss if we didn’t spotlight the number one benefit of AI-driven compensation tools: streamlining time-consuming tasks like data entry, calculations, and reporting. HR teams benefit from reduced errors and improved consistency in bonus and salary calculations, as AI can efficiently execute these tasks based on predefined metrics. Additionally, AI-backed compensation management can continuously monitor compensation satisfaction, equity, and budgetary efficiency. By automatically detecting potential disparities across various parameters, AI facilitates more proactive interventions to reduce compensation missteps. Lastly, the automation of repetitive compensation tasks not only enhances efficiency but empowers HR teams to focus more of their limited time on strategic initiatives that drive organizational growth and employee engagement. 

Embracing the Future of Compensation

Embracing AI technologies presents unprecedented opportunities for organizations to enhance their HR practices, as doing so enables HR teams to make data-driven compensation and total rewards decisions that drive organizational success and foster a positive employee experience. That said, there’s more to a future-focused compensation strategy than just technology. Learn more by accessing our recent panel on Aligning Compensation with Retention Strategy, Values, and Employee Expectations HERE. 

For more information on the broader Connex Community, its library of industry panel discussions, and ongoing calendar of events click here.