Employee compensation – are you prepared to negotiate with AI?

Pay transparency is slowly but surely on the rise.

The introduction of legislation in California, New York and the European Union (EU) indicates that we’re moving towards a reality in which employers can no longer hide behind confidentiality clauses to low-ball candidates, and employees have a clearer starting point for salary negotiations.

This is good news.

Pay transparency is vital for tackling income inequity – by taking away the veil that has for so long shrouded hiring and onboarding processes, candidates have a clearer idea of what they’re worth and more confidence that they are being compensated in line with their potential colleagues.

However, progress is slow.

A recent study from Adzuna, highlighted that in August 2023 alone, just 50.1% of UK job ads featured advertised salaries.

With employers seemingly taking their time to adapt to the direction of travel, candidates are wising up to the tools available to them to help prove their worth, make their case and give them more ammunition at the negotiating table.

And that is being fueled by AI.

Candidates are turning to AI

As with seemingly every facet of modern life, AI is set to transform salary benchmarking and provide tools for those wanting to negotiate a higher package.

HR professionals are reporting increasing cases of candidates coming to interviews armed with generative AI-driven salary expectations.

By asking ChatGPT “what does a ‘insert job title here’ earn in Nevada?” (for example) candidates feel empowered to push for their perceived worth.

But while empowerment is good for levelling the playing field (Syndio research from earlier in 2023 indicated that a quarter of women experience fear and lack of confidence when it comes to salary negotiations), it’s vital that HR leaders and compensation managers understand the opportunities, and the limitations that AI salary tools provide.

Establishing their own pay transparency framework before AI-fueled negotiation risks increasing pay disparities.

Although implementing a pay transparency framework is not a one-stop shop to success, it is a step in the right direction.

With laws like the EU Pay Transparency Directive coming to play, taking that first leap towards clarifying salary bands is as simple as setting a clear description of the criteria used to define pay, pay levels and pay progression.

This highlights just where salary increases and promotions are due and why.

For employers, AI can help to illuminate hidden patterns and disparities within compensation structures.

These tools offer clear data-driven insights, giving HR professionals and leaders the knowledge to make better informed decisions.

The risks of relying on AI

Despite the ability to ease tensions around salary negotiations, there are also potential risks posed by the misuse of AI tools and they are important to understand and confront.

When using AI to build a case for salary negotiations, employees often fail to take into account regional variations, years of experience and other factors which can influence a company’s compensation policy.

Employers can get ahead of these conversations, using AI salary benchmarking tools which can help to analyze large amounts of data, identify trends, patterns and anomalies, to set transparent pay frameworks, and help determine just where each employee fits on the salary structure.

From this, employers are able to make better informed decisions about bonuses, pay ranges and forms of compensation, and employees have a clearer idea about where they fit in.

But while AI offers significant opportunities– for both employees and employers alike in addressing pay inequity – it also raises serious concerns when it comes to bias.

With AI becoming ever-more integrated into everyday life, including the workplace, we could be tempted to think it’s safe to assume that AI will naturally learn to manage bias, right?

Wrong. In fact, a recent study by IBM found that nearly three quarters of businesses fail to reduce unintentional bias in their AI solutions.

With only 14% of companies using specialized technology for pay equity, it is no surprise that compensation is one area at risk of falling foul of poorly thought-out prompts and data sets.

Often non-AI models, such as conventional rule-based systems or those based on statistical distributions, seem more transparent by allowing direct insight and understanding into the decision-making process.

The more that employers define clear and transparent frameworks around compensation policies, and work with AI tools designed to spot and combat bias, the better prepared they will be for these salary negotiations and the more confidence they can have that they are offering their employees fair and equitable pay.

It is only when employers have defined clear and transparent frameworks, that AI can truly swoop in and do the hard work of monitoring compensation without the fear of bias.

Pay transparency is obligating employers to pull back the curtain on their compensation structures.

AI can play a vital role in ensuring that when they do, what they reveal is fair, equitable and robust.