The Sharp Slicing of HR Budgets

In a world of AI complexities and rising levels of burnout, workers may feel as they need as much help from HR departments as they can get. But leaders have taken a decidedly different stance, at least for the moment.

A tectonic shift in resource allocation for HR appears to be underway. In the aftermath of the pandemic, when talent was scarce, HR departments reaped the benefits, from large annual budget increases to newfound influence providing strategic counsel to the CEO and board. But that exalted stature seems to be eroding. Layoffs, reduced hiring, and efficiency gains from AI are bringing about the largest pullback in HR investing in years. According to new data, HR is the corporate division that’s least likely to see a budget increase this year, with just 29% of CFOs planning to invest more in the function. More telling, nearly the same percentage of CFOs plan to decrease their HR budget—the largest hit to any division.  

And it could be even worse, says Ron Seifert, leader of Korn Ferry’s North America Workforce Reward and Benefits practice. “Some firms are looking to reduce HR operating costs by 20 to 40 percent,” he says. The result: On an annualized basis, the average budget for human resources is expected to grow just 0.7%. That’s a far cry from the 9% overall growth we saw in 2025, as well as the mid-single-digit growth of the two years prior. 

Some experts argue, however, that HR leaders need more resources amid AI disruption, not fewer. For all that AI has streamlined hiring, it has also complicated it. Engagement is at an all-time low, and people report feeling stressed and burned-out from expanding workloads and constant change. That’s to say nothing of the effects on HR staff of managing RTO and remote work, building a culture to drive AI adoption, and upskilling employees, among other responsibilities. “As the complexities of human-capital management increase, the value of the HR function to drive business outcomes is at the forefront for leading organizations,” says Korn Ferry vice chairman Joseph McCabe. 

To be sure, given how intimately tied human resources and AI adoption are, many firms are seeking closer alignment between the CHRO and CTO, with some even going so far as to merge the two functions. Emilie Petrone, a vice chairman in Korn Ferry’s Global Human Resources and CEO Succession practices, says smart organizations have learned through past disruptions that transformation doesn’t happen in a vacuum. “For firms to get the performance and outcomes from AI that they expect, human resources has to play an absolutely pivotal part in that agenda,” she says.  

Petrone says the decline in HR budgets this year is likely an anomaly, the result of firms’ investments in building out AI capabilities to drive growth. Data backs that up: The four functions CFOs plan to invest in most are—in descending order—sales, corporate IT, marketing, and research and development. While the emphasis is on productivity, Petrone says organizations primed for long-term innovation and value creation know that they need to balance investment between technology and the human component needed to accelerate transformation. As she puts it, “Firms cutting back on HR budgets may find they have to double down two or three years from now, because they didn’t do the heavy lifting required for AI on the people side.” 

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