Will AI Ever Determine Pay?

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AI may not be coming for your job, but it may help determine your pay.  

In an effort to reduce subjectivity and increase transparency in pay practices, more organizations are using AI to help determine salary, bonuses, and other rewards. According to a new Korn Ferry survey, about one-quarter of firms are using AI for reward applications. Some of the more benign uses include compiling and benchmarking pay data from industry peers and job families to determine salary bands or deploying chatbots to answer employee questions (for instance, about average raise increases in a given department). As AI matures, however, some 40% of leaders anticipate using it to determine base salaries, cash-based incentives, and pay relative to performance, among other things.

Todd McGovern, global leader of the Total Rewards practice at Korn Ferry, says AI’s new role in rewards decisions dovetails with the new laws and attitudes around pay transparency. Basing these determinations on large datasets, he says, helps level the playing for employees. “The trend towards transparency could accelerate AI’s impact on rewards and reduce human intervention,” says McGovern. 

That doesn’t sit well with everyone. According to the survey, more firms are incorporating AI into rewards decisions for a variety of reasons, including a belief that the technology will increase long-term profitability in at least two ways: by relegating certain types of jobs to lower levels of the organization, and by reducing pay for other positions. At the opposite end of the spectrum, workers who have benefited from raises and bonuses related to intangible factors might not want AI making algorithmic decisions either, says McGovern. 

There may also be unanticipated risks to using AI in rewards applications, says Chris Cantarella, a senior client partner in the Global Technology Markets practice and global sector leader for the Software practice at Korn Ferry. For example, what if a firm has a reputation for paying equitably and fairly, only for AI to reveal that it ranks among the lowest on those metrics in its peer group? “That’s a can of worms reputationally,” says Cantarella, “and could potentially become legally problematic.”

Right now, most firms are still in the exploratory phase when it comes to AI and rewards, says Tom McMullen, a senior client partner and leader of the US Pay Equity practice for Korn Ferry. As he sees it, AI’s impact on rewards will be felt less around pay and more around retention and upskilling. As firms move to skills-based hiring, AI can help identify job profiles and salary bands based around bundles of skills. Someone who can code in Python, for instance, might get paid more than someone who codes in COBOL, because the former is more valuable to the company. That piece of data in turn increases transparency around what licenses or credentials are needed to make more money.  

Similarly, McMullen says, AI can help with retention by using predictive analytics to determine differences in promotion rates, hiring rates, performance ratings, and other metrics that influence turnover. “AI won’t be making pay decisions for employees,” says McMullen. “But it will enable management to make better decisions.” 

Learn more about Korn Ferry’s Total Rewards capabilities.