Why IBM ties base pay to skills, not business results

A five-year plan is underway at IBM to invest $150 billion in US-based development of technologies like quantum computing and AI, building on a business priority that’s had implications for the company’s 300,000-person workforce.

The technology company overhauled its HR department back in 2017, developing an AI chatbot called AskHR to handle queries that were previously directed to HR business partners. Less than a decade later, in May 2025, IBM CEO Arvind Krishna said AI had replaced the work of several hundred HR workers, allowing the company to hire additional programmers and salespeople.

Pursuing such AI-driven transformations prompted IBM to rethink its talent and total rewards strategies, CHRO Nickle LaMoreaux recently told HR Brew. The company regularly shares information with employees detailing how it expects skills and job roles to evolve, and places a premium on skills development, which in turn affects workers’ base pay, she said.

Tying skills to base compensation. Around the same time that IBM automated its HR function, the company also changed its performance management system, LaMoreaux said.

She and her colleagues anticipated that “continuous learning” would become more important going forward, she explained. “AI was going to shrink the half-life of skills. No longer could you get a degree in something and it would carry you for a 30-, 40-year career. You were going to constantly have to evolve.”

Today, IBM employees are evaluated on business results, behaviors, and skills in annual performance reviews. LaMoreaux said the idea behind this system was to set “the expectation for employees that growing their skills was important.”

Under IBM’s current performance management system, employees are evaluated on skills objectives that they set with their manager each year. Because business objectives and skills objectives are weighted equally, “you can be a low performer, even if you met your business results, if you didn’t meet your skills results,” she said.

Employees are compensated based on their skills development as well. Base pay and equity grants are tied to this area, while bonuses are based on business results.

Transparency first. Even as companies like IBM have invested heavily in L&D programs to keep their workers relevant in an AI-driven economy, corporate executives admit that some jobs are going away as a result of this technology. At Davos, Krishna predicted IBM would likely see “about 10% displacement, but we will have net addition” due to AI, Charter reported. The company said last November that it planned to lay off a low percentage of its total workforce to focus on higher-growth areas of the business, including AI consulting.

IBM seeks to forecast where roles are headed well in advance so that workers can prepare, LaMoreaux said. She said her team shares information about “what skills are declining, what job roles are declining, what job roles are growing” with employees to help inform their goals.

She likened AI transformation to a pie. While some employees and organizations may be focused on how AI eats into that pie, she emphasized that the pie will get bigger, too. Rather than just “focusing on the piece that AI is taking away,” she said organizations should ask themselves, “where’s that growth going to happen? How are you honest about where that growth is happening? How do you train people ahead of time so that they can then move into those growth areas?”