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Article | Beyond Data

The impact of AI on the ‘how’ and ‘who’ of employee pay practices

By Russ Wakelin and Sambhav Rakyan | January 14, 2025

As artificial intelligence continues to be integrated into HR and compensation-related practices, it’s important to consider how it will impact the entire job function.
Compensation Strategy & Design|Work Transformation|Employee Experience|Ukupne nagrade
Beyond Data

Just as artificial intelligence is reshaping the world of work, so too is it reshaping the compensation function. AI will help streamline processes but, more importantly, it will empower compensation and HR professionals to gain deeper insights and elevate their role in critical decision making for their organizations.

But how can pay professionals best leverage the power of AI? Where can AI add the most value and have the biggest impact? And who will be able to make the most of it?

Maximizing AI value while minimizing risk

With the advent of advanced analytics tools and software, compensation and HR teams can leverage data to make better, more informed decisions. However, before diving into tools and emerging datasets, there are a few AI ground rules to remember.

Data quality

To fully harness the potential of AI and avoid AI hallucinations, you must prioritize trustworthy market data that can be used as a reliable baseline for AI to compare to other, less understood data sources. For AI to do its part, your team needs to do its part by ensuring that data sources are reliable and data collection and validation processes are robust.

Data governance

Effective internal data governance is crucial for ensuring the reliability and accuracy of the data used in compensation analysis. Data governance involves establishing policies, procedures and standards for data management. In turn, this ensures that the data is consistently accurate, complete and current. By implementing robust data governance frameworks, you can maintain the integrity of your organization’s data and minimize the risk for errors or inconsistencies.

Data integration

AI-powered tools can analyze data from multiple sources (e.g., payroll systems, employee surveys, market research reports). By integrating these sources, you can gain a more comprehensive and holistic view of your organization’s compensation landscape.

Ultimately, the best AI is powered by the best data. By prioritizing data quality, governance and integration, you can unlock the full potential of AI and drive greater value for your organization. And as AI continues to evolve and become an increasingly used tool, organizations that embrace AI and invest in their data capabilities will be the best positioned for success.

AI in the context of a particular compensation role

The rise of AI has sparked concerns about job displacement across various industries and functions. However, AI presents an upskill opportunity rather than replacement within the HR function. Remember: AI-powered tools can automate routine tasks (e.g., data collection, analysis) and free time to focus on strategic initiatives.

So, who stands to benefit the most from this automation? In today’s rapidly evolving business landscape, compensation analysts have become increasingly vital. These HR team members:

  • Design, implement and manage compensation programs intended to attract, motivate and retain employees
  • Analyze market data to ensure their organization’s pay structures are competitive and equitable
  • Work closely with HR and management to develop compensation strategies that align with the company’s goals and objectives
  • Must possess a deep understanding of various compensation components (e.g., base salary, bonuses, incentives, benefits)
  • Must stay abreast of industry trends and regulatory changes to ensure compliance and maintain a competitive edge in the talent marketplace

In addition, the role of a compensation analyst has expanded in recent years to include a greater focus on data analysis and technology. And this expansion has elevated the role of compensation analysts as the business increasingly views them as strategic partners to play a crucial role in driving organizational success. A forward-looking compensation analyst should look to data-driven AI tools to lean into this growing opportunity to increase their influence and impact in the organization.

AI’s opportunity for HR and compensation

Those who incorporate AI into the compensation function gain previously unattainable insights. For example, AI algorithms can analyze vast amounts of data to identify patterns and trends that may not be otherwise immediately apparent. This creates an opportunity for analysts to develop their data literacy and analytical skills, including how to interpret and analyze data.

Moreover, AI can help compensation analysts stay ahead of industry trends and regulatory changes. By continuously monitoring and analyzing market data, AI-powered tools can provide real-time updates and recommendations. This provides key information for analysts to proactively adjust their strategies and ensure that their organization’s compensation programs remain competitive and compliant. Add the ability to effectively communicate these insights to leadership, this ultimately leads to more accurate and data-driven decisions that result in better outcomes for both the organization and its employees.

As AI increasingly permeates the compensation landscape, the need for advanced compensation domain expertise will rise. While AI can generate a vast array of insights, it is the industry expert who contextualizes these insights and narrates the story behind the data. Compensation professionals must articulate the rationale behind their chosen market data and ensure that AI-generated insights are accurate and free from errors. This is especially crucial for stakeholder management, which will become more complex as more individuals gain access to AI tools and pose questions with limited context.

Now is the time for organizations to harness the power of the best AI, which is driven by the best data. Finding the most accurate data with the best coverage is essential, but it is critical that the data you rely on is accurate, detailed and relevant. Remember: Garbage in, garbage out.

By leveraging AI in compensation and broader HR functions, organizations can promote progressive thinking and higher-level, holistic analyses. Organizations can analyze their data at both the workforce and the employee or job family levels as well as compare their analytics to the appropriate peers. And by equipping the right in-house employees – compensation analysts – with the proper data and skills, these colleagues will become indispensable business partners, driving strategic decisions and managing the organization’s largest expense more effectively and efficiently.

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Global Product Development Leader, Rewards Data Intelligence
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Global Business Leader, Rewards Data Intelligence

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