Closing out the year, our view was that HR leaders had entered a decisive phase of evolution, as AI moved from experimentation to orchestration, reshaping target operating models and traditional workflows. We anticipated the CHRO role would become more influential as agentic AI and hybrid human-AI teams grew, increasingly needing HR to become the ‘talent orchestration hub’ helping organisations use data to make more predictive people-related decisions and tighter strategy alignment to value creation. We also shared caution to a widening gap between technological ambition and leadership readiness, and the risk of disengagement if organisations failed to equip managers and employees for the new cadence of change. These dynamics have accelerated into 2026 and we’re finding our conversations with HR leaders across all sectors have centered around agentic AI, and specifically ‘Claude’. Although this is still relatively nascent, there is growing excitement at what it can offer HR leaders to repurpose many day-to-day transactional activities.
Over Q1, we’ve begun to scope out key themes for HR leaders. For most organisations, AI transformation and deployment still tops the list of priorities, which in turn is closely followed by the need to redesign the operating model and workforce. Alongside this, preparing and supporting leaders through a period of significant change and uncertainty remains a consistent focus, whilst optimising culture and performance has continued to hold focus for several years.
For Catalyst’s core markets (HR Infrastructure, People and Talent, and Reward and People Analytics), the requirements are clear: we expect increased demand for leaders who can hard‑wire succession into workforce planning, reward heads who can utilise AI effectively, systems and service delivery specialists who can operationalise intelligent workflows, and talent leaders who can source from non‑traditional pools to bring a sharper commercial lens. First‑time and newly appointed CPOs will need to establish board‑level credibility quickly, anchor people strategies to P&L outcomes, and mobilise interim talent to close capability gaps at pace. Amid renewed return‑to‑office pressure, the best CHROs will need to strike the right balance between flexibility and team cohesion. They will be responsible for protecting culture and critical retention in scarce senior talent pools, while also setting clearer expectations for managers about the behaviours that drive performance in an AI‑accelerated organisation.se and how/where they can make significant changes. Naturally, this has created some interesting opportunities in the market on both a permanent and interim basis, although often there is a wider and broader impact upon the existing team members.
The most consistent theme throughout Q1 in discussions with CPO/CHROs has been the opportunities, but also the risks, associated with the deployment of AI as well as the move to offshoring certain roles. The advantages and benefits have been widely discussed and shared, with many often highlighting some of the expected long-term talent risks.
The generalist market continues to demonstrate resilience despite challenging macro conditions, with continued demand for strategic business partners, and a focus on commercially and business-aligned partners now more than ever. With many of our clients, a major theme of discussion has been the shift towards skills-based talent strategies. Organisations have had to move quickly to identify and address the gap between skills they currently have and those they will need in the future. This shift has pushed demand for HR leaders with experience in driving this transformation, and we are seeing an increasing number of these roles in key locations outside of the UK, including Spain, the Netherlands and the Nordics.
Within PE-backed organisations, the strongest activity is coming from tech-enabled services, software, and AI-adjacent businesses who continue to generate demand, largely driven by scaling challenges and the need to mature leadership teams quickly. Healthcare and life sciences also remain active, particularly where regulatory complexity and workforce pressures require experienced HR leadership during phases of growth or integration. Meanwhile, business services and outsourced services platforms, especially buy-and-build plays, are consistently using interim HR leaders to support integration, standardisation, and cultural alignment across acquisitions. We’re also seeing a clear rise in consumer and retail turnaround situations, where HR plays a central role to restructuring and cost-optimisation efforts.
Since early 2026, the interim and fractional HR leadership market in PE-backed businesses has regained momentum – quietly, rather than a sharp rebound. Funds are using interim and fractional CHRO/HRD capability as a default lever, rather than a last-resort solution. Whether it’s a newly acquired asset that needs rapid professionalisation, a mid-hold business looking to drive EBITDA through org design and talent upgrades, or a portfolio company between permanent hires, there’s a flow of short, outcome-driven mandates.
Fractional hiring is frequently coming up in conversations as a pragmatic middle ground: funds may not want, or have a need for, a full-time HR leader early in the hold, but they do want credible strategic input. The overall pattern suggests that where PE firms are scaling fast, integrating multiple assets, or driving transformation under pressure, interim and fractional HR capability is playing a consistent – and increasingly routine role. The tone of hiring is still cautious, though. Processes are slower and there’s more scrutiny on track record, but once funds decide to move ahead, deployment is swift and expectations are high.
Throughout 2025, HR Infrastructure teams evolved towards far more strategic and integrated operating models, shaped by cost optimisation, regulatory complexity, and the need for clearer workforce insight. Organisations have been consolidating systems and streamlining HR operations, moving away from fragmented tools toward unified platforms that support consistent, data driven decision-making. Coverage in the Financial Times highlights how large organisations are simplifying support functions, flattening structures and centralising shared services, with HR Operations and Payroll often at the core of these efforts. The result has been leaner HR functions overall, but with a rise in senior, strategic roles accountable for service delivery, alongside increased use of outsourced and global delivery models to manage cost and complexity.
Looking further ahead into 2026, these shifts are driving strong demand for leaders who can operate across the overlap of operations, technology, and governance. Clients are prioritising candidates with experience in platform integration, global payroll oversight, and operating model design, alongside the ability to turn workforce data into actionable commercial insight. Beyond this, we’re seeing organisations want HR Operations and Systems functions that can deliver scalable, compliant, commercially aligned operations while driving company-wide workforce transformation.
Senior leaders will be expected to set the strategic direction for HR technology, operations and payroll, ensuring systems and processes are optimised to support business objectives. We’re seeing clients prioritise individuals who can interpret and effectively communicate data effectively, design and implement integrated operating models, and lead multi country teams through complex change. These leaders will also need to influence the executive agenda, balance efficiency with governance, and champion initiatives that enhance workforce capability and overall organisational performance.
Reward continues to grow in complexity, shaped by rising governance expectations, expanding pay transparency regulation, and evolving employee needs. Like their peers across the HR leadership team, Reward leaders are under sustained pressure to manage costs while adapting to new pay transparency and equity mandates across global markets – including the EU Pay Transparency Directive, which is now a central driver of reward transformation.
Reward leaders are expected to operate with a strategic, end‑to‑end total‑rewards mindset, linking pay decisions more clearly to business impact and performance while ensuring governance, accuracy and defensibility. At the same time, transparency expectations are widening; only 24% of organisations clearly articulate the purpose and design of their reward programmes, yet 65% say transparency will be a major regulatory driver over the next two years. This combination of scrutiny, regulation and operational complexity is increasing the demand for stronger reward capability and more robust data infrastructure – particularly as some organisations report early-career skill gaps among reward Analysts.
Alongside this, accelerated demand for AI and skills‑based learning is reshaping pay models and talent strategy in Q1. Reward teams are being pushed to demonstrate how emerging skills, particularly AI literacy, data proficiency and digital capability, should be reflected in job architecture, pay progression and talent investment. Global surveys show a significant rise in skills‑based and performance‑based reward models expected to scale in the next three to five years, while at the same time, HR and compensation functions themselves are becoming increasingly data‑science‑enabled as AI automates benchmarking, market pricing, and pay‑modelling workflows. With salary budgets stabilising around 2–3% globally for 2026 and broader HR investment constrained, organisations are focusing on targeted pay differentiation for critical skills, personalisation of benefits, and holistic wellbeing as cost‑effective levers for retention and competitiveness.
What does this mean for hiring? We’ve seen an unusually active start to reward hiring in 2026, driven largely by observations during pay review cycles. Continuing 2025’s theme of “doing more with less,” organisations are prioritising Reward leaders who can communicate with clarity and confidence, act as true strategic partners to the business, and bring strong numerical and analytical capability. Supporting them, we are seeing a growing demand for highly technical, data‑savvy talent with meticulous attention to detail – more from a finance background – as the function becomes increasingly data‑driven.
2026 will bring several important legislative changes. The Employment Rights Act came into effect over Q1 and early Q2, introducing new Day‑1 paternity and parental leave entitlements. So far, we haven’t seen any reduction in hiring appetite, though organisations will need to ensure that they are fully prepared for these changes. Adjustments to probation periods, onboarding and speed-to-productivity will be increasingly critical.
Another key piece of legislation is the EU Artificial Intelligence Act, which will require organisations to report on how they use AI systems. This means businesses that have been experimenting or ‘sandboxing’ AI tools will need to make decisions on deployment, establish audit trails, strengthen internal processes, and build AI governance frameworks at pace.
Last year, Lucy Bills partnered with Gemma Bullivant to explore the EU Pay Transparency Act and practical steps organisations can take to prepare. The legislation will come into effect in June, and most employers are now well-positioned for the changes. For those who may find it helpful, the link to the webinar is below.
In the US HR market, the trends outlined above are playing out with intensity. From a recent conversation with a banking-sector CHRO, who has recently been asked to lead both HR and the technology organization, it’s clear that that HR leaders are being positioned as true enterprise strategists, expected to shape financial outcomes and orchestrate both human and AI‑enabled workforces, rather than solely focus on traditional people processes. The boundaries between HR and technology are becoming increasingly blurred as organisations look for leaders who can integrate talent strategy with digital capability, govern AI adoption, and ensure workforce models match rapidly shifting business demands.
The second major trend, middle‑layer redefinition, is also sharply felt across US industries. As AI automates routine managerial work, organisations are compressing layers and expecting far greater judgement, cultural leadership and cross‑functional coordination from remaining managers. This in turn creates new pressure on HR to redesign role architecture, progression pathways, and capability frameworks.
Finally, within the US insurance market, the need for agility, tech fluency and risk leadership is becoming highly visible, where significant succession risk is emerging. Many senior producers who hold concentrated client relationships and revenue accountability are approaching retirement simultaneously. This increases the need for HR to build more strategic workforce plans, strengthen leadership pipelines, and address talent‑to‑value risks with far greater sophistication and speed.
At the earlier-career end of the market, we’re also seeing challenges. Entry-level hiring is becoming increasingly misaligned, driven by an increase in high-volume, generic applications, and an overreliance on automated screening. Employers are now receiving 140+ applications per role (up ~59% YoY), largely fueled by AI-enabled mass applying, while more than 90% of organisations use AI tools to filter candidates – and many using it to auto-reject at the first stage. At the same time, 66% of companies are reducing entry-level hiring, with major firms scaling back their graduate intake, tightening supply as application volume grows. The result is a structurally ‘broken’ funnel: candidates lack clear entry points and default to transactional, scattershot applications, while employers, overwhelmed by volume and therefore overusing AI filters, risk missing high-potential talent.
To rebalance the market, organisations will need to make a shift by investing in earlier, more-personalised engagement and reducing over-automation at the initial screening stage in favor of skills-first, human-first approach that prioritises signal over volume. In parallel, candidates need to adopt a more targeted, relationship-approach, prioritising networking, relevance, and professional connection over mass application.
As 2026 unfolds, it is clear that HR is no longer simply adapting to disruption – it is actively steering enterprise transformation. Agentic AI, new legislative demands, and rapidly evolving workforce expectations are fundamentally reshaping the remit of HR leaders, placing greater emphasis on strategic clarity, operational sophistication, and organisational courage. The themes emerging across People and Talent, HR Infrastructure and Reward and People Analytics all point to the same inflection: organisations need leaders who can turn complexity into coherent action, blend human judgment with intelligent automation, and anchor talent strategy firmly to commercial value.
Across our client conversations, one constant stands out: the organisations moving fastest are those willing to rethink not only their systems and structures, but also their leadership behaviours, workforce models, and expectations of HR itself. CHROs who embrace their expanding enterprise mandate – balancing governance with innovation, flexibility with cohesion, and AI‑driven efficiency with cultural stewardship – will be best positioned to navigate the next phase of change.
While hiring sentiment remains cautious, demand for exceptional HR leadership is intensifying, particularly for those who can operationalise AI, drive skills‑based talent strategies, modernise reward, and deliver globally scalable, data‑led HR operations. Interim and fractional leaders will continue to play a pivotal role as organisations move quickly to close capability gaps and prepare for regulatory and technological shifts.
Ultimately, 2026 is a year in which HR’s influence is not only growing but being redefined. As businesses face into restructuring, skills shortages, governance pressures and AI‑accelerated transformation, the most successful HR functions will be those that act with precision, communicate with clarity and lead with intent, building workforce strategies that are as dynamic and future‑fit as the environment they operate in.
If you are interested in scheduling a meeting to discuss any of the above trends in more depth with our market specialists, please do get in touch at catalyst@catalystpartners.com.
