Teradata CEO cuts employee raises to fund AI investment as companies race to stay competitive

Teradata Halts Employee Raises to Fund AI Investment

Cloud software company Teradata has informed its more than 5,000 employees that they should not expect annual salary adjustments this year, as the organization redirects those funds toward AI investment. In an internal memo obtained by Business Insider, CEO Steve McMillan stated the company's 2026 focus is to "win in the market with AI" and confirmed that "we will fund this AI investment by reallocating the budget from 2026 annual salary adjustments." 1

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Teradata employees typically receive a 2% to 4% salary raise each year, making this budget reallocation a significant departure from standard compensation practices. 2

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Growing Trend of Prioritizing AI Investments Over Compensation

Teradata is not alone in reallocating funds for AI at the expense of employee benefits. TTEC, a customer experience technology company, told its 15,000 U.S.-based employees in April that it would suspend 401(k) matches until the end of 2026 to invest in AI certifications, training, and AI-enabled tools. 2

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A Resume Builder survey of 866 business leaders revealed that more half plan to cut employee compensation and redirect spending toward AI development and integration, with companies cutting bonuses, equity awards, and raises in pursuit of revenue growth and competitive advantage. 2

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Global AI spending is projected to reach $2.53 trillion in 2026 and climb to $3.34 trillion in 2027, according to Gartner. 2

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Questions About AI Returns and Impact on Employee Morale

The decision to deny no raises this year in favor of AI comes as researchers question whether these investments actually deliver value. An MIT report found that 95 percent of AI pilot programs at companies are failing and delivering little to no measurable impact on profits. 1

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Some employers are also discovering that soaring AI coding usage fees make replacing human workers more expensive than initially anticipated. 1

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Stacie Haller, chief career advisor at Resume Builder, warns that companies are "racing to stay ahead of the game, and they have really no idea what they're going to need in a workforce afterwards." 2

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The impact on employee morale could be severe, as workplace strategist Jennifer Moss noted that Steve McMillan's unabashed admission "marks a real shift in what leaders are willing to say in public." 1

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Concerns About Job Security and Retention

Experts warn that cutting compensation to fund AI sends troubling signals about job security. Oxford University economist Jan-Emmanuel De Neve told Business Insider that "when leaders openly cut human compensation to fund AI, they are trying to project decisive, tech-forward management. However, the actual message traveling to the workforce is that they do not have a secure future in the organization." 1

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Haller suggests that cutting raises and benefits may create attrition instead of conducting mass layoffs, but this strategy could backfire as high-performers seek better compensation elsewhere. 2

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Employment attorney Jared Pope notes that a year without a raise amounts to a pay cut in an economy with a 3.8% inflation rate. 2

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What Companies Should Watch For on Future Workforce Needs

The long-term consequences of these decisions remain uncertain. Haller, drawing on 30 years of recruiting experience, cautions that "people have long memories. They're going to remember when they didn't get bonuses because of [AI spending], and if it doesn't work out in the end, I don't think it's going to be a happy ending for some of these companies." 2

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January Machold, a Teradata spokesperson, declined to comment on the decision to pause raises but stated the company is "actively investing in AI" through products and services, including a new autonomous agentic platform. 2

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As companies navigate future workforce needs, the tension between AI adoption and retention strategies will likely intensify, forcing leaders to balance technological advancement against the risk of losing their most valuable human talent.