Teradata pauses annual raises for 5,100 staff to fund AI spending instead

Teradata is telling 5,100 employees to wait. In January, global cloud software company Teradata informed staff there would be no annual salary raises this year as the business reallocated money toward AI investments, Business Insider reported. CEO Steve McMillan, in an internal memo to employees, framed it as a competition problem: the focus for 2026 is to “win in the market with AI,” and Teradata will fund the investment by reallocating the budget from 2026 annual salary adjustments.

That matters because Teradata employees “typically receive a 2% to 4% salary raise each year.” So while this is being sold as an investment in the future, it lands as a pay reset in the present. It’s also happening while global AI spending is expected to hit $2.53 trillion in 2026 and reach $3.34 trillion in 2027, according to Gartner. In other words: Teradata is not guessing about AI being a priority, it is acting like it is already too late to be casual.

Teradata is not alone in reshaping benefits to find AI cash. TTEC, which employs 15,000 U.S.-based workers, told employees in April it would stop 401(k) matches until the end of 2026. The company’s April 30 memo said the pause would “protect the long-term strength” of the customer experience technology and services company, according to Business Insider. TTEC also said cutting the match would give it more flexibility to invest in AI certifications and training, plus AI-enabled tools and automation.

Both moves follow a similar logic: if you can’t add headcount, you can reallocate budget. And there’s evidence companies are moving in that direction more broadly. A Resume Builder survey of 866 business leaders found that more than half of respondents plan on cutting employee compensation and moving that spending toward AI. The article notes that companies reported cutting bonuses, equity awards, and raises, with the belief that these actions will ultimately drive revenue growth and deliver a competitive advantage.

But Stacie Haller, chief career advisor at Resume Builder, says the problem is timing and thinking, not the goal. She has 30 years of recruiting experience, and her argument is that companies are implementing AI while failing to map what comes after the AI race ends. “There is such a huge push for companies to stay cutting edge and implement AI, and they think it's going to cut back their workforce and save all this money,” she told Fortune. “Everybody's racing to stay ahead of the game, and they have really no idea what they're going to need in a workforce afterwards.”

Haller’s second-order warning is about attrition by design versus attrition by consequence. She suggests cutting raises and benefits could be a way to create some attrition instead of conducting mass layoffs “in the name of AI productivity.” In a low-hire, low-fire labor market, companies may believe they can take a slower, cheaper exit route. But Haller argues the backfire risk is that high performers remember. “People have long memories,” she said. “They're going to remember when they didn't get bonuses because of [AI spending], and if it doesn't work out in the end, I don’t think it's going to be a happy ending for some of these companies.”

Teradata’s spokesperson, January Machold, declined to comment on the specific decision to pause raises, but said the company is “actively investing in AI” in both products and services, including a new autonomous agentic platform. Machold told Fortune in a statement that the investments are “concrete investments in product innovation-and in the customers and industries that depend on Teradata for their most critical workloads,” and the company is “confident in the direction of the business.” TTEC did not respond to Fortune’s request for comment.

For executives and boards trying to evaluate how much of this is financial strategy versus labor market risk, the real signal is how these changes are communicated and what employees infer from them. Jared Pope, an employment law, benefits, and human resources attorney and founder of Work Shield, said a year without a raise is essentially a pay cut in an economy with a 3.8% inflation rate. He also argued that historically, pay raises were often tied to longevity, but now the direction of travel is different: pay tends to track measurable impact, “both immediately and near-term, not necessarily long term.” That means workers may be optimized for the next three months, not the next two years, which changes how organizations retain talent and how they define performance.

Pope’s sharper point is about messaging and buy-in. “The problem isn’t that employers are cutting raises,” he said. “It’s more about how major changes are communicated.” If communication is done correctly, he suggested, leaders get more buy-in. If communication is lacking, organizations see a “very high increase in the frustration” of team members. Even if a company’s decision is truthful, directly telling employees that wage increases are going toward AI could still increase turnover, he added.

There’s also a different lever companies may pull, which rewards loyalty while still reducing headcount: voluntary layoffs. Domenique Camacho Moran, a lawyer and partner at employment law firm Farrell Fritz, told Fortune in April that voluntary exit options let employers say, “It’s not about the fact that we don’t think you’re doing a good job, but if you’re thinking about it’s time for me to move on.” The employer incentivizes workers to exit because it needs to cut staff.

When you zoom out, the strategic stakes for any CEO or CFO are clear: AI investment is accelerating, but the workforce equation may be evolving too. If employers fund AI by pausing compensation growth and employees interpret it as a signal that raises, bonuses, and benefits are negotiable, the result can be the worst possible outcome: loss of institutional talent before the AI roadmap pays back. The risk is not just whether AI succeeds, but whether the workforce strategy matches the investment timeline.