As businesses revise their rewards strategies in response to a challenging economy and emerging technology, many struggle to effectively communicate with employees.
Only 16% of organizations are confident that their managers can explain AI-related pay and work changes to employees, the latest Korn Ferry Global Rewards Pulse Survey found. Just 43 percent agree that managers understand reward strategy well enough to communicate it, and fewer than one-third say managers can effectively explain pay decisions at all.
“Organizations are responding to economic volatility not via broad cost cutting, but through more disciplined and targeted rewards optimization,” the report said. “Optimization focus areas include balancing competing tensions: cost vs. value, personalization vs. scale and simplicity vs. sophistication. AI, skills, mobility and capability building are primary workforce management focus areas.”
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Rewards communication remains a major weakness for most organizations. Manager capability is emerging as the critical success factor, as many report that their managers are not prepared to explain pay decisions, transparency requirements or AI-related changes to employees. Communications, education and job architecture are leading redesign priorities to enable pay transparency.
“Stop optimizing rewards for yesterday’s workforce and start building a rewards ecosystem designed for skills, transparency, AI and differentiated talent investment,” the report said. “The biggest rewards challenge is not choosing between cost and value; it is building programs sophisticated enough for a segmented workforce but simple enough for managers and employees to actually understand and appreciate.”
Cost management has shifted to ROI, hiring scrutiny
The new cost-management playbook is not as focused on benefit and program cuts, but rather on ROI scrutiny, selective hiring and flexible rewards levers that preserve trust while forcing every rewards dollar to defend itself. Part of this playbook is in moving to increased total rewards differentiation between critical talent and others.
AI is no longer a technology issue for rewards, but is the new operating context for pay, skills, mobility and job architecture. Organizations that treat it as a side topic will quickly find their reward models obsolete. AI adoption in rewards is moving from curiosity to production, and the danger is that executives will demand enterprise-grade outcomes from functions that still lack enterprise-grade AI capability.
“Managers are becoming the weakest link in the reward value chain,” the report said. “If they cannot explain pay, equity, transparency and AI-related changes, the best-designed rewards strategy will still fail at this moment of truth. The biggest threat to rewards is no longer market competitiveness. It is employee disbelief in the credibility of rewards and gaps in understanding or feeling the value of the organization’s spend.”
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