Challenges, Economics and AI Are Altering Rewards Priorities

A variety of factors — artificial intelligence (AI), economic conditions, employee retention and manager capability being among the most prominent — are impacting and shaping today’s rewards strategies, according to Korn Ferry’s latest Global Total Rewards Pulse Survey.

Conducted in June 2026 and released in July, the consulting firm’s survey reflects responses from 5,512 organizations across 135 countries, providing a global perspective on how companies are navigating those factors, along with evolving workforce expectations and changing rewards priorities. 

Workspan Daily (WD) interviewed Tom McMullen, Korn Ferry’s senior client partner and North America total rewards expertise group lead, to delve deeper into the survey’s key findings and understand how organizations can address the reward challenges they are facing.

Tom McMullen, Korn Ferry

WD: What reward areas are currently being prioritized, and why?

McMullen: The priority list from the research is revealing. Total rewards communication and employee and manager education lead at 43%, followed by job and career architecture at 40%. Market pricing and compensation structures and overall reward strategy are tied at 35%, with pay-for-performance alignment at 31% and AI utilization at 27%.

This order reflects a shift from adding programs to strengthening the system that makes programs credible. Organizations appear to recognize that transparency, skills-based differentiation and AI can’t scale on weak architecture or inadequate and inconsistent communication.

The lower ranking of alignment between pay and skills, at 9%, also indicates that many employers remain early in turning a skills ambition into a mature rewards practice. The immediate priority is, therefore, foundational: Create a clear architecture, robust market logic, consistent governance and a manager-ready communication model before layering on more personalized or AI-enabled experiences.

WD: What current rewards challenges are organizations facing?

McMullen: Organizations are trying to modernize rewards on a foundation that is not yet strong enough to carry the weight. The current challenge is not one issue, but several weaknesses reinforcing each other.

First, most organizations describe themselves as only moderately effective at balancing the core tensions in reward design: cost control versus employee value, personalization versus scalability, sophistication versus simplicity and short-term versus long-term needs. Personalization is a particularly weak point, with only 16% of organizations rating themselves “very effective” and none rating themselves “extremely effective.”

Second, the infrastructure is lagging. Job and career architecture is a top redesign priority at 40%, while alignment between pay and skills ranks [low] at just 9%, even though 47% of organizations report increasing pay differentiation for scarce skills.

Third, the delivery system is breaking down at the manager level. Only 16% express strong confidence that managers can explain AI-related changes to work and rewards; only 30% say managers are equipped to discuss pay equity and transparency; and only 33% say managers can effectively explain pay decisions.

The result is a credibility gap: Organizations are designing more advanced reward strategies faster than their architecture, governance and managers can support them.

WD: Can you expand on the finding that managers aren’t well equipped to communicate reward programs? How can employers improve in this area?

McMullen: The moment of truth in rewards is not when the program is designed — it is when a manager has to explain it.

Manager readiness is one of the clearest breaks in the rewards value chain. While 45% of organizations have strong confidence that managers understand reward strategy and 43% believe they can differentiate pay for performance, confidence falls to 33% for explaining pay decisions, 30% for discussing pay equity and transparency, and just 16% for explaining AI-related changes.

Therefore, training needs to move beyond policy briefings. Improvements can include:

• Provide managers with a short decision narrative that explains what changed, why it changed, what they can and cannot say, and where to escalate questions.
• Equip them with plain-language scripts for the hardest conversations, including pay positioning, performance differentiation, transparency and AI-related work changes.
• Use scenario practice, calibration discussions and teach-backs so managers demonstrate capability before speaking with employees.
• Give them accessible decision support at the moment of need and track recurring questions to improve both the program and the training. The goal is not to make managers compensation experts. It is to make them credible, consistent and confident translators of the reward strategy.

“Organizations are designing more advanced reward strategies faster than their architecture, governance and managers can support them.”

WD: What role does AI play in the future of rewards?

McMullen: AI is not “another rewards tool.” It is becoming the operating context for how work, skills and pay are defined. AI is already the most prominent organizational response to economic uncertainty, with 74% of organizations reporting increased usage. Yet, the maturity data shows a sharp gap between ambition and execution.

Only 19% of organizations report embedded or transformational AI capability in total rewards today, while aspirational levels are far higher.

Current activity is concentrated in practical use cases such as communication and transparency, job and skills architecture, and external pay benchmarking. More strategic applications, including predictive analytics and personalization, remain comparatively underdeveloped.

This creates a real execution risk: Leaders may expect enterprise-grade outcomes from reward functions that still lack enterprise-grade data, governance, operating models and manager capability.

The right priority is not to chase novelty. It’s to establish trusted data and clear governance, then scale proven applications that improve transparency, consistency and decision quality.

WD: How about the role of economic conditions?

McMullen: In a low-growth pay environment, every rewards dollar has to defend itself. The economic picture is cautiously positive, but it’s not permissive. Approximately 90% of organizations expect some revenue growth over the next 12 months, with growth of 6% to 15% the most common forecast. At the same time, geopolitical uncertainty and a global economic slowdown are the leading external concerns, and nearly 60% report more constrained salary growth.

Across most major markets, 2027 salary increase forecasts are flat or slightly below 2026. (Click here for an article on the survey’s salary findings.) For example, the median total salary increase forecast declines from 3.3% to 3.0% in both the United States and the United Kingdom, and from 3.5% to 3.0% in the Netherlands. That combination changes the rewards mandate. Employers should protect core programs, scrutinize return on rewards spend and differentiate investment where it will matter most.

Non-financial value also becomes more important. Career development, internal mobility and skills growth rank as the top retention priority, at 65%, while enhancing financial compensation programs ranks last, at 16%. The emerging playbook is targeted optimization, not blanket increases or indiscriminate cuts.

WD: What other factors are impacting the future of rewards, and how can employers respond to them?

McMullen: Pay transparency doesn’t create reward problems — it makes old problems impossible to hide. Two forces are converging: regulatory transparency and skills scarcity.

On regulation:

• 58% of organizations have adjusted their reward communications approach.
• 55% report a significant impact from pay equity and transparency.
• 44% have adjusted reward governance.
• 33% have adjusted job architecture processes.

On skills:

• 47% report increased pay differentiation based on scarce skills.
• 39% are placing greater emphasis on skills over jobs in talent management.
• 37% are increasing investment in skills-based career frameworks.

Employers should treat these as one connected transformation. Transparent pay requires defensible job architecture, consistent market pricing, clear decision rights, explainable differentiation and managers who can communicate the logic.

At the same time, skills-based rewards must be governed carefully so premiums and differentiation are evidence-based, current and understandable. A transparency law can expose architecture weaknesses, while a weak architecture can undermine a skills strategy. The response must, therefore, integrate job architecture, skills, pay equity, governance and communication rather than running them as separate initiatives.

WD: What steps might organizations take over the next 12 months?

McMullen: Don’t start with the most futuristic use case. Start with the weakest link that employees can already see.

Over the next 12 months, organizations should sequence the work deliberately:

• Close the manager-readiness gap by identifying the conversations with the lowest confidence, then provide scripts, scenario practice, escalation paths and decision support.
• Strengthen job and career architecture because it’s the connective tissue for market pricing, pay equity, career mobility, skills and transparency.
• Redesign communication around explainability because employees need to understand not only what they receive, but how decisions are made and what they can do to progress.
• Introduce AI where the survey shows the greatest current traction and clearer value — particularly communication and transparency, job and skills architecture, and external benchmarking.
• Put data quality, human oversight, governance and fairness controls in place before scaling more advanced applications such as personalization or predictive analytics.
• Use scarce reward dollars selectively by investing in critical skills, top performance, mobility and capability building rather than spreading modest increases uniformly. Organizations that strengthen the foundation now will be better positioned to move faster later without sacrificing trust.

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

• Employee Compensation
• Organizational Performance
• Total Rewards