Managing Annual Compensation, Your Retiring Employees, and Underuse of AI Tools

Hey everybody, it's Gene Marks, and welcome to this week's episode of the Paychex Thrive Week in Review. This is where we take a few items in the news from this past week and we talk about them a little bit because they impact your small business and mine.

Now, before we get started, let's we all know that it's this time of year again, right? When your focus shifts from, you know, the following year, budgeting, what growth would look like in your business. We're all thinking about 2027 right now. However, equally important for your success is ensuring that your company is handling its mid-year and year-end compliance requirements, like state minimum wage changes, workplace posting updates, state retirement mandate reminders. These are all just like a few things that we have to like keep in mind.

So, Paychex provides you with a checklist to jumpstart the process, which also includes a mid-year HR review so you can familiarize the business with how to close any of your compliance gaps. So, if you're interested, go to go.paychex.com/midyear to download the asset and prepare yourself to end the year compliantly. I'm not sure if that's a word or not, but I think you get what I mean.

Anyway, let's get to the news this week. All right. The first news comes from an article in cfo.com and a salary … a survey from Korn Ferry. Despite economic uncertainty, most American companies expect to provide employees with raises in 2027. That's good news. This is according to Korn Ferry's survey of 5,512 employers.

U.S. organizations anticipate increasing their overall base salary budgets by an average of – are you ready? – 3.3%, with a median increase of 3%. Nearly half of employers expect to give raises to at least 95% of their workers, while only 2% plan no increases. Bonus expectations are less encouraging. 49% expect payouts to meet their targets, 37% anticipate below target or non-existing payments, and only 14% expect above target payouts.

Korn Ferry is advising employers to avoid both excessive generosity and severe restraint. Instead, using flexible scenario-based compensation plans. Artificial intelligence is also reshaping compensation and workforce strategies with 74% of the respondents reporting increased AI use. Additionally, 65% are expanding employee reskilling efforts, and 60% are placing a greater emphasis on career development and internal mobility.

So, the takeaway here, Korn Ferry says a 3.3% average increase in salaries in 2027. I read another survey that was around 3.5%. So, we can, you know, generally around that range is what most employers are planning for 2027. Now, bear in mind, that's kind of at the rate of inflation, like barely keeping up with inflation. So, you know, we want to we want to take that into consideration.

I do agree with Korn Ferry saying you don't want to be too generous because once you give a salary increase like all other employee benefits, it's kind of tough to take it away. You give a, you know, a four percent increase, and then people kind of expect that year over year. So, I get it that you don't want to be too generous because it does kind of set a benchmark.

My advice is twofold in what I'm saying among my clients. I do think you should be using bonuses this year. I think you should be tying them to performance. I think you should make it discretionary and incentive based. But just because somebody's getting a 3.3% increase in their wages this week doesn't mean that's it for them. If they perform and they meet their objectives, whatever they might be, they can be seeing more money, as well, and that should hopefully benefit both your employee and yourself.

The other thing that I can also recommend, and again, I'm seeing this with my clients, is just PTO. I mean, besides health insurance and retirement, you know, flexibility is the third-most requested benefit among most employees, and this is according to multiple surveys. So, as a small business, we do have a lot of ability to be more flexible than our larger counterparts.

So, I do this in my business. I mean, you know, my compensation, my benefits, they can't compare to some of my larger competitors, but I do say to my employees, “Listen, we offer unlimited PTO in our company” after somebody's been there for a while, it's two years. It is important to say that listen, that that's a form of compensation that you can't get elsewhere, and because I run a small business, I can be way more flexible about it. That kind of makes up for salary increases.

But bottom line is this: salary increases are around 3.3 to 3.5% in 2027. Figure in that when you're doing your budgets and making your plans for 2027.

All right. The next article comes from a survey by Bank of America. As roughly 10,000 Americans turn 65 each year. I'm not there yet, by the way. Employers face growing risks for retirement, including talent shortages, lost institutional knowledge, and operational disruptions. Bank of America is recommending treating retirement as a gradual transition instead of a sudden departure.

Phased retirement arrangements, such as part-time consulting or project-based work, can retain experienced employees while they train successors. Employers should also institutionalize knowledge transfer through mentoring, cross-training, shared responsibilities, and alumni programs. This planning matters because replacing an experienced employee can cost 50 to 60% of that worker's salary and potentially as much as 200% when lost productivity and knowledge are included.

Benefits should also recognize that older employees have different financial circumstances. About one-quarter of baby boomers believe they are not financially prepared to retire. Flexible work options, financial wellness programs, and retirement planning resources can help employees make better decisions while allowing companies to manage succession more deliberately. This is all advice from Bank of America.

A couple comments on that. We all know about the silver tsunami and the aging workforce, as well. A great number of people are turning 65 and older over the next you know five to 10 years, and we all get that. But also let us all understand that there are a lot of people – 65 is not 65 anymore. A lot of people I know that are 65 years old and 70 years old are looking and feeling and working like they're 15, 20 years younger. So, just because somebody turns 65 doesn't automatically mean you need to force them into retirement, although many people would maybe want to retire.

But I think some of Bank of America's advice is really well founded. A lot of people, almost a quarter, that are going to retire don't have the financial means to do so, so they're gonna need your help. Plus, people that are retiring, a lot of them wanna still do something. They want to have purpose. They want to be productive. Doesn't mean they want to work 60 hour weeks or they want to be doing what they were doing when they were 30 or 40. But my bet is that your most experienced and seasoned employees probably still want to be involved in your business in some way if it makes sense to them.

So, be open to any flexible work programs with your older employees. And yeah, while you have them on premise, have them mentor, have them coach, have them train your younger employees, as well. It's really, really important to do.

I think older employees can be an amazing asset for your company. Again, just because they're hitting of a certain age doesn't mean they have to fully retire. Consider some plans. Start thinking ahead for how you want to keep them around; maybe easing them out in a mutually agreed arrangement, but somewhere where they can still feel needed, still get some work in, still have purpose, still make a few extra bucks, but then you can also get not only their productivity out of them, but also some performance, mentoring, and coaching.

So, I like the advice that Bank America gave this week.

Finally, in this week's AI news, only 14% of small businesses have successfully integrated AI. This is according to Anthropic, and they have a solution for this. Small, by the way, this article comes from Inc.com, small businesses were interested in artificial intelligence but often lacked the training needed to integrate it into everyday operations.

Before conducting free workshops for more than a thousand business owners, Anthropic surveyed 503 small business decision makers and found that 81% were willing to try new AI tools. Their biggest obstacle was employees' uncertainty about when and how to use them. Many workshop participants regularly use Claude but were unfamiliar with the advanced features that automate work step flows, for example.

Hands-on instruction, such as building systems to automate payroll or serve as virtual chief of staff, were the program's most popular components. Participants also valued learning how other businesses apply AI.

Separately, Goldman Sachs research found that although 76% of small businesses use AI, only 14% have integrated it into core operations. Anthropic is responding by expanding its small business workshops and launching a trainer program to help community organizations and AI partners deliver practical instruction.

This is the same for all new technology rollouts. Whenever big tech rolls out something, be it Microsoft, Google, Anthropic, OpenAI, whatever, it's usually the case where it's users, particularly small business owners like you and me, who are making very small use of that technology.

I mean, come on, look at Microsoft Office, which you probably have, or Google Workspace. How much of it are you really using? Most of my clients are using 10 to 20% of its capabilities, and yet there's so much more that they could be doing with it that would add productivity and profitability. It's no different with all these AI tools.

I can guarantee you, for the most part, you are probably underusing Claude or Copilot or ChatGPT or Gemini in your business. So, the answer is training. Either take the free stuff that some of these big tech companies are offering, or you know what? Go to LinkedIn, find a good consultant, hire them to look at your business, see where you can be using these tools best, and then have them come up with a training plan and implement it for your employees.

Your employees are terrified of AI. They don't need to be. They need to be taught how they can use their AI platform to really make their jobs and their lives better. And you want to take full use of those AI tools so that you can get more productivity out of your employees and also more profitability, as well.

So, yeah, both Anthropic and Goldman Sachs are right. Although these AI tools have rolled out and people are using them, they're not using them anywhere near to the extent that they could be using them. It's a training issue. So, if you invest in anything in 2027, invest in training for your AI tools and, you know what, for all of your software that you have in your business.

My name is Gene Marks, and you have been watching or listening to this week's episode of the Paychex Thrive Week in Review. Please remember to subscribe to this podcast either on YouTube or in your favorite podcast platform.

If you want some advice or tips or help in running your business, go to paychex.com/thrive. And don't forget about the mid-year compliance checklist. It is now time to make sure that you are up to date on all of the HR issues, compliance, and laws that are apply that are affecting your business both federally and in your state. Go to go.paychex.com/midyear.

Again, my name is Gene Marks, thanks for watching or listening. I'll be back with you next week with some more news that impacts your small business and some thoughts on that news. Thanks.

My name is Gene Marks, and you've been watching or listening to the Paychex Thrive Week in Review podcast. A few things to take away. First of all, if you are in need of HR or payroll help in your business, consider Paychex. Go to paychex.com/meetpaychex. That's P-A-Y-C-H-E-X.com forward slash M-E-E-T-P-A-Y-C-H-E-X. Please follow this podcast on your podcast platform or on YouTube if you are enjoying the content so you stay up to date on our latest episodes.

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Hope you found this information helpful. I'll be back with you next week with more news that impacts your small business and mine. My name is Gene Marks. Thanks so much for watching or listening. Take care.

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