Determining the most appropriate salary is a key issue for companies. What’s more, in the current ‘great resignation’ scenario, retention simply cannot be ignored. One of the reasons employees change jobs is in order to get their expected salary. This leads to losses for companies, both in terms of performance and from a monetary perspective. There are the costs of a recruitment process, onboarding, training, understaffed teams, and a lack of engagement, to name just some of the costs involved.
It may be time for companies to consider implementing fair wages through a calculation system, and this is an area where Artificial Intelligence (‘AI’) and machine learning (‘ML’) can help.
As we will explain, AI is able to take many factors into account, including inflation and living conditions, and may therefore be able to offer significant improvements in terms of efficiency, accuracy and transparency in assessing fair compensation. At this stage, AI-based salary management is not far away.
In this article, we refer to AI as technology able to to perform tasks commonly associated with intelligent beings. In this context, ML is a kind of AI system that is capable of learning from problem-specific training data and automatically building models to solve problems.
The type of algorithm that can be used for salary management issues is what’s known as supervised ML. Supervised learning is a process where a human programs a computer to link different inputs to desired outputs. After this initial phase, the programmer confirms the accuracy of the automatic choices made by the machine.
The main goal of the process is to make the output as accurate as possible so that the machine, with an ever-increasing amount of data, can generate outputs independently and without further human intervention. With the right model, when the variables (like the cost of living or inflation, for example) change, the perfect salary will adapt accordingly.
Before trying to define the ‘perfect’ salary, it is important to assess why employers would want to explore new paths to optimising their compensation packages, and how AI can be a key partner in this.
AI can facilitate fairness in the compensation management process. In fact, in assessing the perfect salary, AI may take account of things like an employee’s working ability, technical grade, special skills, age, the local standard wage for the role, the internal job position, and their length of service within the company. On the other hand, with specific reference to variable remuneration based on performance, AI may rely on scoring standard quantitative items such as inflation, work integrity, work completion rate, work quality and compliance with the company’s standards.
In light of all this, the perfect salary package is not necessarily the highest one. Conversely, a mathematical approach to salary management using AI may lead to perfectly balanced compensation packages in terms of fixed remuneration, variable remuneration, retention bonuses and inflation, or other variable adjustments. This kind of perfectly balanced salary may offer a cost saving to the employer while also meeting employee expectations.
As we have explained, AI and ML may be extremely beneficial for companies. First, they could allow companies to keep up with the market, since offering and paying the perfect salary certainly increases efficiency and can give companies a competitive advantage.
AI may also significantly reduce the risk of errors and may generate a reliable starting point for the employer’s salary management decisions. On another level, the AI features which relate to compensation could also be useful in order to gain credibility with job applicants. This could lead to improved talent attraction and employee retention.
Finally, AI could become a powerful tool to help process mandatory pay reporting, compliance and other institutional requests on a single platform. For example, when it comes to the the gender pay gap and equality, the reports of companies’ internal structures could be easily completed by AI, which may also suggest ways for employers to achieve their targets in these areas.
In conclusion, the use of AI for compensation and benefits management is uncharted territory. It is clearly capable of changing the way companies define their remuneration packages and incentive programs. Although there are challenges to overcome, the potential benefits are clear.
Authors: Giulia Comi, Matteo Costa, Matteo Lovo, Vittoria Panzeri and Carlotta Zoccoli