The growing trend of funding AI instead of raises marks an uncomfortable new chapter in the relationship between workers and the technology reshaping their workplaces. Artificial intelligence, it turns out, isn’t just threatening jobs. In a number of companies, it’s now coming directly out of employees’ paychecks.

A Memo That Said the Quiet Part Out Loud

The shift came into sharp focus at Teradata, a global cloud software firm. In January, the company informed its 5,100 employees that they should not count on an annual salary increase this year, according to an internal memo. The reason given was blunt: the money was being redirected toward artificial intelligence.

Chief Executive Steve McMillan framed the company’s central goal for 2026 as winning in the market with AI, and explained that achieving it would require greater investment in AI talent and expertise. To pay for that push, he wrote, the company would reallocate the budget that would normally have gone toward annual salary adjustments.

Teradata declined to comment specifically on the budget decision, though a spokesperson said the firm is actively investing in AI to improve its products and services. Two long-serving U.S. employees, each with more than a decade at the company, said they had typically received yearly raises of 2 to 4 percent, while noting those increases were never guaranteed.

The memo did leave a few doors open. Workers may still earn performance-based bonuses and equity, and the freeze applies only in countries where regulators don’t require salary adjustments tied to the market.

A Pattern, Not an Isolated Case

Teradata is not alone in making this trade-off openly. The technology and services firm TTEC recently paused its 401(k) matching contributions for U.S. employees through the end of 2026. In internal communications, the company explained that scaling back the benefit would help fund the tools, training, and capabilities needed for its AI future.

What stands out is not just the cuts themselves but the willingness of leaders to name AI as the cause. Workplace strategist Jennifer Moss, author of a book on building healthier work cultures, described this as a genuine rhetorical shift. She noted that whether such candor reads as more honest or more cynical depends on one’s perspective, but it clearly changes what executives feel comfortable saying publicly. And as she pointed out, once something becomes sayable, it tends to become more doable.

Why Compensation Becomes the Target

Both Teradata and TTEC operate in an industry where failing to adapt to AI is viewed as an existential threat, which helps explain the urgency. The broader appetite for AI spending is enormous. A recent CIO survey from RBC Capital, which polled 117 IT professionals across companies of widely varying sizes, found that 90 percent planned to increase their AI budgets in 2026.

Those investments don’t come cheap. Costs can range from tens of thousands of dollars for modest pilot projects to millions for full enterprise-scale transformations. The timing is especially tough, arriving as many businesses already operate under tighter budgets shaped by inflation, tariffs, and supply chain disruptions. Both Teradata and TTEC have struggled financially in recent years, with global revenue falling 5 percent and 3.2 percent respectively in their latest reporting years.

Yet Moss is firm that cutting worker pay is a decision rather than an unavoidable outcome. Companies have other options, she explained, including taking on debt, trimming nonessential spending, adjusting executive compensation, pursuing acquisitions, spreading investments over time, or simply accepting lower margins for a set period. Alphabet, for instance, recently announced plans to sell $80 billion in stock to finance its AI infrastructure.

So why does compensation so often end up on the chopping block? According to Moss, it comes down to a hard truth: payroll is usually the largest controllable expense at most companies and the one with the least organized resistance. She added that the actual cost of AI is relatively small compared to total compensation. Supporting that point, BCG’s 2026 AI Radar, a survey of 2,360 global companies, found that businesses expect to spend only about 1.7 percent of revenue on AI this year.

The Message Employees Actually Hear

For all the talk of bold, forward-looking leadership, experts warn the strategy may send precisely the wrong signal. Jan-Emmanuel De Neve, an economist who directs Oxford University’s Wellbeing Research Center, expects more companies to make similar choices and sees it as a symptom of short-term thinking.

When leaders openly cut human compensation to bankroll AI, he explained, they may believe they are projecting decisive, tech-savvy management. But the message employees receive is far less flattering: that they do not have a secure future within the organization.

When Cuts Go Beyond Pay

Frozen raises and paused benefits actually sit at the milder end of the spectrum. Other companies have linked AI directly to layoffs and reduced hiring. Meta cut 10 percent of its workforce in May, tying the move to a drive for efficiency and the need to fund investments, even as its capital spending for the year was projected to reach as high as $135 billion.

The list goes on. Snap, Cisco, and Salesforce have all announced staff reductions while pointing to AI-driven efficiencies, and Uber’s chief executive said in May that he would offset rising AI costs by hiring fewer people. Teradata’s own head count has fallen by more than 21 percent since December 2023, a reduction of roughly 1,400 people that the company attributes to its growth strategy.

A Shifting Balance of Power

Employment attorney Ellen Raim, who spent three decades in corporate HR leadership, observed that many organizations are now leaner and under mounting pressure to demonstrate productivity gains and stronger returns on head count. AI, she said, is being positioned as a fast way to deliver those results.

That framing carries real risks for morale. Many workers already fear their well-being is being pushed aside, a worry reinforced when Standard Chartered’s chief executive described certain roles as lower-value human capital, a remark he later apologized for. Comments like that, Raim noted, reflect a wider tendency among executives to talk about people primarily as costs or capacity. It may add up neatly on a spreadsheet, but it can quietly erode an organization from within.

The deeper danger, she warned, is that companies underinvest in their people and damage trust at the very moment they need employees to embrace new tools and help identify where AI can truly add value. In the rush to fund the future, in other words, businesses may be undermining the very workforce they are counting on to build it.