Pay Gap Between HR Leaders, Top Officers Persists

By Suzanne Young

Sep. 21, 2006

While total compensation for HR executives is on the upswing, the gap between compensation for top HR executives and the highest-paid positions within the company continues to be significant. Those who have made it into the ranks of a company’s top five officers (excluding the CEO), whose compensation is reported to the Securities and Exchange Commission, are still the exception.

    The good news is that compensation for HR as a discipline is growing quickly, second only to growth in CFO compensation. Yet, only 25 of the 350 HR executives surveyed annually by Mercer Human Resource Consulting made it into the top five in 2005.

    For the top HR executives in this select group, it is largely the long-term equity incentive component in the total compensation package that has put them there, according to Joe Vocino, principal consultant in Mercer’s performance measurement and rewards practice.

    But Vocino cautions against comparing executive HR compensation with the top five as a measure of relative value to the organization.

    “It’s still very rare for HR to be in the top five. There are so many factors that influence how any individual is paid that it’s dangerous to draw broad conclusions from that,” he says.

    He prefers to quantify value to the organization by measuring internal accomplishments, such as the return on investment of incentive programs linked to company business strategies and the track record of retaining top performers.

    While leading HR executives typically are not among the top five, they are getting closer, says Bill Coleman, senior vice president of compensation for “One key measure is whether the HR person reports directly to the CEO, rather than to one level below,” he says, noting growth in the number of people reporting in at the highest level.

    In general, the top five typically include the COO, CFO and top legal, sales and marketing, and research and development executives. While the average top HR executive’s compensation is about 42 percent of the average COO and 66 percent of the CFO, the gap begins to narrow when compared with the top legal executive (69 percent), top sales and marketing executive (77 percent) and top R&D executive (90 percent).

    Average compensation for top HR executives equals that of top marketing executives and chief information officers.

    “It depends on the organization and the person, but on average the HR executive is at the low end of the pack,” Coleman says.

    That may be in part because their peers have stronger bargaining positions. He notes that CFOs in particular are in a stronger position with the increased responsibilities of the Sarbanes-Oxley Act of 2002.

    Mark Reilly of 3C Compensation Consulting Consortium in Chicago says the best way to assess whether a company values HR is to look at how HR executives are doing relative to one another, rather than the gap between the top HR executive and the top five or the CEO.

    In organizations that are “intense people organizations with a lot of employees and a very complex employee environment,” Reilly says, compensation packages for top HR executives are likely to be above the market.

    One sector where he sees HR moving up is in professional services firms, where assets typically are people.

    “Take a company like Goldman Sachs, for example,” he says. “People are the main asset in this company.”

    In these companies, the chief HR executive may very well be compensated above the market.

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