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

CEO Says There Will Be No Raises Because He Spent All the Money on AI

Can't-miss innovations from the bleeding edge of science and tech For years, tech CEOs have used AI as an excuse to justify layoffs. In reality, though, many experts say that what's really happening is that execs are diverting financial resources into AI at the expense of everything else -- including employee retention. In one of the most egregious examples yet, cloud software company Teradata told its more than 5,000 employees not to expect a raise this year because its budget was being spent on AI instead, according to an internal memo obtained by Business Insider. "We will fund this AI investment by reallocating the budget from 2026 annual salary adjustments," Teradata CEO Steve McMillan wrote in the memo. Besides likely drawing the ire of everybody involved -- as if there wasn't enough of a growing anti-AI sentiment as it is -- it may not have been the wisest choice. Tech leaders are starting to question whether sidelining human labor in favor of AI investments was such a good idea after all. For one, researchers are finding that many of these investments are simply not paying off, leaving leadership to hold the bag. An oft-cited MIT report from last year found that a staggering 95 percent of AI pilot programs at companies are failing and delivering little to no measurable impact on profits. Then there are the soaring costs of actually replacing human staffers with AI, with employers racking up enormous AI coding usage fees and leading some to wonder whether employing workers was actually cheaper. In short, the line of thinking that AI will eventually replace workers and bring down costs is being seriously challenged by reality, making moves like cutting raises in favor if AI investments a highly questionable one. Experts also told BI that Teradata's unabashed admission marks a notable change in the way tech leaders speak about their decisions. "Whether that's more honest or more cynical depends on your read, but it does mark a real shift in what leaders are willing to say in public," workplace strategist and author Jennifer Moss told the publication. "And what becomes sayable tends to become more doable." To some, it's a sign CEOs are trying to send signals to investors that they're willing to embrace cutting edge tech at all costs -- which could end up backfiring. "When leaders openly cut human compensation to fund AI, they are trying to project decisive, tech-forward management," Oxford University economist Jan-Emmanuel De Neve told BI. "However, the actual message traveling to the workforce is that they do not have a secure future in the organization." More on AI and labor: Large Study Finds That Replacing Workers With AI Is Backfiring Badly

A CEO denied raises to spend money on AI instead. Companies have 'no idea what they're going to need in a workforce' when the AI race is over. | Fortune

While you're worried about AI replacing you, it may already be cutting into your paycheck. In January, global cloud software company Teradata told its 5,100 employees that there won't be annual salary raises this year as the business shifts its budget toward AI investments, Business Insider reported. The focus for 2026 is to "win in the market with AI," CEO Steve McMillan said in an internal memo to employees. "We will fund this AI investment by reallocating the budget from 2026 annual salary adjustments," he added. Teradata employees typically receive a 2% to 4% salary raise each year. Similarly, TTEC told its 15,000 U.S.-based employees in April that it would stop 401(k) matches until the end of 2026. The pause would "protect the long-term strength" of the customer experience technology and services company, Laura Butler, the company's chief people officer, said in the April 30 memo. Cutting matching would give the business more flexibility to invest in AI certifications and training as well as AI-enabled tools and automation, the company told Business Insider. In fact, a recent Resume Builder survey of 866 business leaders found that more than half of respondents plan on cutting employee compensation and move that spending towards AI. Companies reported cutting bonuses, equity awards, and raises to invest in the technology, believing it will ultimately lead to revenue growth and a competitive advantage. But for Stacie Haller, chief career advisor at Resume Builder, her 30 years of recruiting experience tell her that companies are cutting without thinking about the long-term consequences. "There is such a huge push for companies to stay cutting edge and implement AI, and they think it's going to cut back their workforce and save all this money," she told Fortune. "Everybody's racing to stay ahead of the game, and they have really no idea what they're going to need in a workforce afterwards." Cutting raises and benefits may be a move to create some attrition instead of conducting mass layoffs in the name of AI productivity, Haller said. Companies are taking advantage of job-hugging in the low-hire, low-fire labor market, she explained, but cutting raises and benefits could backfire on employers in the long run, as high-performers move on to new roles because they can get better compensation elsewhere. "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," Haller said. January Machold, a spokesperson from Teradata, declined to comment on the decision to pause raises but said that the company is "actively investing in AI" in both products and services, including a new autonomous agentic platform. "These are concrete investments in product innovation -- and in the customers and industries that depend on Teradata for their most critical workloads. We are confident in the direction of the business," Machold told Fortune in a statement. TTEC did not respond to Fortune's request for comment. A year without a raise is essentially a pay cut in an economy with a 3.8% inflation rate, but it's indicative of how businesses are changing, according to Jared Pope, an employment law, benefits, and human resources attorney and founder of Work Shield, a workplace misconduct investigations company. "In the past, pay raises were tied to longevity," he said. "Where we are today, or at least where we're headed to, is if you have a measurable business impact on the company, both immediately and near-term, not necessarily long term, you're the one that's going to have the higher pay." Employers are more focused on workers who can help them in the next three months, not the next two years, he explained. Teradata's move comes as companies are heavily investing in AI. Global AI spending is expected to hit $2.53 trillion in 2026 and reach a staggering $3.34 trillion in 2027, according to business and technology insights firm Gartner. The problem isn't that employers are cutting raises, it's more about how major changes are communicated, Pope said. "If that communication is done correctly, then you'll have a lot more buy-in from members, but when that communication is lacking, that's when organizations are going to see a very high increase in the frustration of their team members," he explained. Saying directly to employees that their typical wage increases are going toward AI could lead to turnover, he added, even if that's the truth. Another approach to cutting down the workforce is voluntary layoffs, a move that rewards loyal workers. "The voluntary exit option gives the employer the ability to say, 'It's not about the fact that we don't think you're doing a good job, but if you're thinking about it's time for me to move on. I'm going to incentivize you to do that because we need to cut some staff,'" Domenique Camacho Moran, a lawyer and partner at employment law firm Farrell Fritz, told Fortune in April.