The Platinum Handshake

The list of the 30 top-paid HR executives of 2006 presents a lesson that others in the field would be wise to heed: Don’t promise large severance packages that might make your company stand out from the pack.

    No one seems to have learned that lesson better than Home Depot, which paid its former head of HR, Dennis Donovan, $13 million in severance when he gave notice of his resignation late in the company’s 2006 fiscal year, which ended January 28.

    As part of his 2001 employment agreement, Donovan was eligible to leave the company and receive the severance package if he no longer reported to Robert Nardelli, who resigned as the company’s president and CEO in January.

    As a result, Donovan was the top-paid HR executive based on companies’ 2006 annual filings, making over $19 million in total compensation—more than three times the amount made by the No. 2 HR executive on the list, which was compiled for Workforce Management by Salary.com.

    Until this year, observers wouldn’t have any way of knowing about this large payment from just looking at Home Depot’s annual proxy statement. But under the new Securities and Exchange Commission rules on executive compensation disclosure, companies now have to disclose the perks and severance benefits in a separate column of their compensation tables.

    “In general it’s always risky to have termination provisions that are tied to anything other than the individual status of their jobs,” says Russell Miller, managing director at Executive Compensation Advisors, a subsidiary of Korn/Ferry International.

    The good news is that Donovan’s compensation appears to be an anomaly, says Bill Coleman, managing director of Salary.com. Overall, HR execs seem to have low base pay relative to their total cash compensation and large equity payouts—which signals that they are being paid for performance, he says.

    “This means that HR is being paid like other top management in that they get a big shot of equity,” says Charles Peck, principal researcher and program manager on compensation for the Conference Board. “It confirms their place among the executive rank.”

    Some compensation consultants were surprised to see listed the HR executives at many smaller-sized companies, like Bank of Hawaii, which has 2,695 employees, and Biogen Idec, with 3,900 employees.

    “I would expect that this list would be all Fortune 500 companies,” says Jack Dolmat-Connell, CEO of DolmatConnell & Partners, an executive compensation consulting firm in Waltham, Massachusetts.

    “It seems to mean that some smaller companies are paying a lot of money for HR and really recognize the value of this position,” he says.

    But given that the list is only based on proxy filings, which name the company’s five top-paid executives, it might just make sense that some larger companies are not on the list.

    “In many big global conglomerates, the head of HR is not going to be in the top five, because those companies have multiple presidents who are compensated more,” says Cathy Shepard, a principal at Mercer Human Resource Consulting.

    Experts also noted the number of women on this year’s list of the top-paid HR executives. Last year there were only three women on this list. This year there are seven—a jump that some optimists might say is a sign that women are moving up the corporate ranks. But given the fact that the HR profession is heavily represented by women, having only seven women in the top 30 is not heartening, Shepard says. In fact, a recent World at Work survey found that 73 percent of HR professionals are women.

    The list also demonstrates a gradual shift occurring within HR departments, Mercer principal Catherine Hartmann says. “Given the new focus on Sarbanes-Oxley and compliance, companies are starting to tap people within their finance and legal departments to fill these positions,” she says. Four of the 30 companies in this list have HR executives who also are responsible for legal and compliance areas.

    And that fact should serve as another lesson to HR, experts say. “If you want to be successful within HR, you need to have some legal or financial background,” Hartmann says. “If you don’t have it, you better go learn it.”

Workforce Management, September 10, 2007, p. 30 — Subscribe Now!