Zoho has announced that employees will not receive the usual level of salary increases this year. Founder Sridhar Vembu explained that the company is facing sharp cost pressures due to artificial intelligence (AI). Server prices have gone up nearly four times, and AI usage is driving data centre expenses higher than ever.
Vembu also pointed to geopolitical uncertainty and slower global growth as reasons for cutting back. Marketing budgets have already been reduced, and hiring has been frozen for the past 18 months. While he apologised to employees for not being able to deliver normal pay hikes, he stressed that Zoho will work hard to avoid mass layoffs.
This is the first time Vembu has openly acknowledged the risk of large scale job cuts, even as he reiterated his commitment to protecting jobs wherever possible. The company’s cautious stance reflects wider stress across the IT products and services industry, where AI is reshaping costs, margins, and workforce planning.
The Zoho case highlights a growing challenge: balancing employee expectations with financial realities in an AI driven environment. Pay hikes, once routine, are now under pressure from technology costs and global instability. HR leaders must prepare for conversations around rewards, retention, and transparency, while also exploring non monetary ways to sustain engagement.
Clearly, AI is not only transforming products and services, but also reshaping how organisations manage people and pay.