If you’re responsible for shaping your company’s compensation and benefits strategy, you’re already feeling the pressure to make smarter, faster decisions to ensure strong retention and an engaging employee experience. You’re under pressure to optimize budgets and justify every dollar while retaining and investing in top talent. And you’ve been asked to figure out how more AI, not more people, can help.

Starting this year, AI has fundamentally changed how compensation decisions are made, scrutinized, and communicated. Employees have higher expectations around clear communication, consistency of decision-making, and personalized insights into their growth and pay trajectory. Executives must make data-driven, well-informed decisions and be prepared to explain those decisions with clarity and precision.

Let’s get candid about what’s happening, what’s next, and how you can lead your merit and compensation plan cycles with confidence.

The Right Mix of Data-Driven Insights and Human Critical Thinking

Data driven insights have always been the language of strong leadership. Now, with AI, data-driven insights are an expected universal standard. Gone are the days of relying solely on spreadsheets. And using AI can automate the more administrative aspects of merit and compensation cycles, like generating merit letters. According to a recent survey by General Assembly, 82% of HR professionals use AI daily.

However, there are some things AI just can’t do when it comes to your compensation plan. AI can create charts and graphs that help you in the board room, but it doesn’t understand team dynamics, deliver sensitive feedback, or align decisions with company values or strategic priorities.

For accountability, impact, and to drive a narrative both to executives and employees, the next merit cycle is a true combination of technology and the human touch.

For example, companies using Sequoia’s integrated platform can see how changes in total comp and benefits affect both individual and team outcomes in real time. But, it’s the human compensation consultants at Sequoia who provide hands-on guidance, helping clients build strategic plans that scale and navigate any bumps in the road.

What This Means for 2026 Compensation and Merit Planning

  1. Audit your merit planning process: Take a critical eye to the data and talk to a Sequoia advisor about how to set up your organization for the future. AI will save you time and streamline processes so you can do the human work of ensuring alignment with business strategy and leadership goals.
  2. Prepare for new pay transparency regulations: At Gartner’s HR Symposium in London, the research and advisory firm predicted that by 2032 at least 30% of the world’s largest economies will be watching and regulating the ratio of human to AI. As you think about your people strategy, develop your company’s point of view on AI’s role in your organization and in your merit decisions; you may be reporting on it in the future.
  3. Upskill compensation teams: Training your team on AI skills goes beyond prompt writing. Using AI as a founder or compensation leader means being able to understand AI bias, see anomalies and trends in the data, and ask the right questions. According to a Gartner survey, only 8% of HR leaders say their teams have the right AI skills. As you train AI models to help with merit and comp planning, also train your team to use AI without losing their human advantage or pick an outsourcing partner who you trust.

Creating Resilience 

Using AI in compensation planning doesn’t make the process less human or less strategic. Technology, including AI, should enhance the process with faster data analysis, more accurate modeling based on real-time data, and produce much deeper insights.

AI gives people teams time and space to focus on the strategic and human elements that matter most: aligning pay with purpose, communicating value, and making equitable, forward-thinking decisions. When used thoughtfully, AI becomes a tool that amplifies judgment, empathy, and strategy, making companies more resilient in the long run.

Get Expert Comp Planning Support for Your Next Merit Cycle

AI is changing compensation planning, but it’s not replacing the need for strategic, human guidance. Our advisors can help you build a plan that’s data-informed, people-first, and ready for what’s next. Connect with a Sequoia advisor to learn more.

Related:

Kyle Holm — As the VP, Compensation Advisory, Kyle is responsible for leading our team of experienced professionals who ensure Sequoia clients have pay programs in place that attract, motivate, and retain their employees. Kyle is based in San Francisco.