Recent headlines on AI (AI) employment are phenomenal. A $100 million package is creating news. The “Acquihire” deal (purchasing a company for key talent) is rewriting the norms of startups, with the board rushing to compete for talent that appears to violate traditional compensation logic.
Compensation is important, but it is just part of the Employee Value Proposal (EVP) needed to attract and retain people. The pressure to compete for AI talent is intensifying, and today's board faces familiar decisions. Escalate your pay package to meet talent pressures and build a competitive advantage throughout the rest of your EVP. The most enduring companies know when to invest in compensation, when to maintain their culture and invest heavily in the broader work experience that maintains great talent over time.
The risk of “run-control wages”
The risk of being too leaning towards compensation By yourself It is well established:
- Cultural erosion can occur when compensation is central Reasons for working at a company. In a high-growth environment, this dynamic is especially damaging, shifting focus from missions to pay as a critical feature of culture.
- Compensation to support high growth strategies This can depend on a constant revenue acceleration if performance is not maintained. At the peak of the pandemic wage frenzy, 90%+positioning was not uncommon, but once the market normalized, these levels became nearly impossible to maintain without precarious wage structures.
- Passing overcompensation compensation resources can limit strategic flexibility as new opportunities arise. This is impossible for businesses that need agility in today's macroeconomic environment, and for AI opportunities.
These risks are avoidable if the organization balances competitive wages with a broader EVP that maintains culture and engagement over the long term.
Put it in practice: reminders to cultivate employee value propositions during AI transformation
The best way to avoid running wild around talent is to develop a wider EVP toolkit that attracts and maintains talent while protecting the internal culture. Strong organizations across EVPs have employees who work throughout the market cycle. Additionally, compensation costs are expanding sustainably as business grows. The reason is usually the following combination:
- Growth opportunities: Clear paths of progress and skill development that attract ambitious talent.
- Mission and Impact: A meaningful job that provides essential motivation, especially when employees have multiple high pay options.
- Culture and belonging: A comprehensive environment that promotes psychological safety and long-term commitment.
- Strategic Benefits: Flexible work, resources and perks to distinguish without premium base pay.
- Profile-specific differentiators: For AI talent, this may include access to autonomy, higher computational resources, or opportunities to make meaningful impacts on emerging technological paradigms. Startups, for example, may be attractive due to the lack of bureaucracy and closed-off teams.
This is more than just theoretical. Among the eye-opening headlines on AI pay, we have seen high-profile cases of employees rejecting large wage packages in favour of employees working for companies with stronger EVPs. Companies that win long-term talent games are companies that can attract top performers without reflexively requiring them to be the highest bidder.
Strategic talent investment protects and strengthens a positive culture
All of this may require investment in top-class talent. This is especially true when building foundational capabilities in AI or other strategic areas, or when the company needs to expand quickly. However, for most companies, the escalation of uncompensated compensation can lead to fragile economics and fragile cultures. The fusion of culture and economics promotes long-term success. Some tactics we saw in successful organizations include:
- mOnitor's aggregation compensation competitiveness. Few boards receive comprehensive reward competitiveness reports beyond burn rate analysis. The Compensation Committee should regularly review the organization's compensation position compared to its key talent competitors to identify when reward growth exceeds its strategic basis.
- Keep premium compensation narrow and targeted. If you need to pay premium talent in a particular area, be intentional about where premium compensation is spent. For example, not every department needs as many high-paid “superstar” engineers as AI model builders.
- Building a framework that helps identify premium talents enables strategic investments without volatile reward architectures. It helps you to view premium talent costs as capital investments and track ROI.
- Continue disciplinary action over pay exceptions. When you think that everyone should get a special exception, it can create a qualification culture that is difficult to reverse. For most businesses, it is appropriate to provide special exceptions for less than 5% of the workforce.
- Build a discipline for performance differentiation. Don't be afraid to pay low for poor performance. Rewarding high performers while being disciplined about reducing low-performing pay creates a performance culture that helps attract not only money but also talent motivated by merits.
- Set clear expectations upside down. Qualifications and potential bonuses should be positioned as opportunities to acquire, not qualifications. This messaging helps maintain motivation while avoiding high payment expectations, even at low performance that contributes to the dynamics of runaway compensation.
The above strategies are generally useful, but don't forget that companies identify and employ certain intangible assets and broader EVPs. What are the only company that can offer, and how can they reveal both potential and current talent?
Conclusion
The past five years have proven that runaway wages are not just augmentation in economics. It can also erode cultures, undermine missions, and create divisions within the workforce. If employees consider payments to be the dominant EVP, restarting them around purpose and belonging often requires a painful reset.
Whether driven by a pandemic, venture money or the latest rare talent pool (i.e. AI), Talent Wars is not necessarily the one that pays the most. They are won by those who build the most persuasive sustainable value proposition informed by the hard lessons from 2020 to 2022 and the HR fundamentals of company affiliation and loyalty.
Companies making purely reactive compensation decisions are rising for the same painful calculations that many experienced when growth has eased and investor perseverance faded after the pandemic. People who build thoughtful and inclusive talent strategies create enduring competitive advantages that transcend a single market cycle.
