Top Dollar The 10 Highest Paid Human Resources Leaders

C all it subtraction by addition. Leo J. Taylor, executive vice president for human resources at Pulte Homes, says that when the leading home-building firm reaches $20 billion in annual revenues–still some years away–he hopes to have pared his workforce-management staff from 30 down to 20. “I want one HR professional for every $1 billion in revenue,” Taylor declares. And if that sounds brash, well, brash pays.

    Taylor has used his aggressive, in-your-face style of management to become one of the 10 highest-paid human resources executives in the United States in an analysis of just-released 2003 proxy statements compiled for Workforce Management by Aon Consulting’s eComp Database. He ranks third and earned nearly $4.2 million in cash, bonus, stock and other compensation. While personal style is key to Taylor’s success, it also helps that he works for a hot company. Pulte Homes, like some other companies on the list, had a banner year in 2003, pushing up the value of Taylor’s stock. Shares of Pulte Homes jumped from $50 at the beginning of 2003 to $93 by the end of the year and then split 2 for 1 in January. Pulte’s earnings before interest, taxes and amortization were nearly $1 billion during that period.

    Paul McBride, senior vice president for human resources and corporate initiatives at Black & Decker Corp., is No. 1 on Aon’s list of the highest-paid workforce managers in a computer analysis of 5,097 proxy statements filed by publicly traded companies between January 1 and April 30. He earned $6.2 million in total compensation, which included salary, bonus, stock options and long-term incentive payments. McBride took over his new post in a reorganization completed this year. He replaced Leonard Strom, who retired as the senior vice president of human resources after a long career.

    Dennis Donovan, a much-honored human resources chief at The Home Depot Inc., was No. 2, pulling in more than $5.4 million in total compensation. Donovan, a fellow in the National Academy of Human Resources, joined The Home Depot in 2001. Others in the top 10, in descending order, are Taylor; William Roskin, senior vice president of human resources and administration for Viacom Inc., just over $3.9 million; Brent Stanley, the now-former senior vice president, human resources, for PG&E Corp., $3.4 million; Bruce Johnson, senior vice president, human resources, for The Timberland Co., $3 million;Robert Foreman, vice president, human resources, at SPX Corp., more than $2.9 million; Brian Brooks, executive vice president and chief human resources officer, Interpublic Group of Companies Inc., $2.6 million; Jeffrey Smith, now-retired chief human resources officer, general counsel and secretary, Cincinnati Bell Inc., $2.2 million; andJohn W. Holleran, senior vice president of human resources and general counsel, Boise Cascade Corp., $2.19 million.

Beauty contests
    Compensation-based proxy-season beauty contests are usually reserved for CEOs. But focusing the same spotlight on human resources executives provides an interesting view of a profession in flux. As workforce leaders push their way from backroom administration to the boardroom, one obvious impact on the profession is the creation of more millionaires. But the proxy results–which list only the five highest-paid corporate officers in each public company–also show that human resources executives still have a long way to go before they share top billing with COOs, CFOs and chief legal officers.

    In its analysis of 5,097 proxy statements, Aon found that only 172 human resources executives were listed as one of the top five officers in their companies, a rate of 3.3 percent. A separate study recently released by Towers Perrin surveyed a narrower base of 519 publicly traded companies. It put the low percentage in context by comparing human resources leaders to other senior corporate officers. When it did that, Towers found that human resources executives showed up on the short list in only 5 percent of the firms. In contrast, chief financial officers were listed among the top five in 76 percent of the companies and chief legal officers in 38 percent. Other studies show increasing numbers of workforce executives penetrating the top levels of management. As low as those percentages are, a few years ago only 2 percent of human resources executives were being listed in proxy statements, so some observers, like consultant Joe Vocino of Mercer Human Resource Consulting, see improvement.

    In yet another study of this year’s proxy statements, Mercer counted only 24 human resources executives among the five highest-paid corporate executives at 350 of the largest public companies it surveyed. Still, that is nearly twice as many as the 13 who showed up in a similar survey in 1999. The median salary for these 24 executives was just under $1.1 million. Compensation came in much higher for human resources executives among the group in the 75th percentile–nearly $2 million.

    Vocino, a senior compensation consultant, thinks there has been a dramatic change in the past 5 or 10 years. “You are seeing HR being valued much, much more in organizations,” he says. “More and more, we are seeing HR right at the CEO’s side at the time of strategic decisions, acquisitions and divestitures.”

    Outside issues will continue to push human resources executives into the top rank, Vocino says. That’s because they are in the thick of matters such as increased shareholder scrutiny of top compensation levels, class-action lawsuits by unhappy employees and a growing appreciation of the competitive importance attached to attracting and retaining a highly productive workforce. These all can have a big impact on profits, and executives who can walk through those minefields are highly prized, Vocino says.

    All of that places senior workforce managers like Leo Taylor and others on the list in a very small fraternity, and underscores the value of human-capital management to a company such as Pulte. “The people who do make that list of five are obviously pretty special people in their organizations,” says Brian Dunn, head of Aon’s global compensation practice. “These are not people simply expressing the desires of the people really running the companies. These are people at the strategy table running the companies.”

    As increasing numbers of human resources executives push their way onto the top rung of corporate executives, it’s clear from the fate of two of those on the top-10 list that they face some of the perils usually reserved for CEOs. At PG&E, Stanley got caught up in a public fight over what were described as lavish compensation packages awarded to top executives of the utility while its main subsidiary was in bankruptcy.

    During Stanley’s tenure, PG&E won workforce honors, including being named among Fortune magazine’s 50 Best Companies for providing opportunities to minority employees. But the last stages of his career at PG&E coincided with a controversy over what critics called lavish golden parachutes granted to senior executives at a time when the company was losing money. A proxy proposal to require shareholder votes on pay packages that exceed 200 percent of the executive’s base salary plus bonus was offered up–and rejected–at the company’s annual meeting in March after receiving support from the California Public Employees Retirement System, among other organizations. Stanley, whose retirement became official on June 1, was replaced a month before the meeting by Russell Jackson, the previous human resources chief at the parent company’s Pacific Gas and Electric Co. subsidiary.

    At Cincinnati Bell, Smith, an attorney, received a golden parachute as a result of a merger agreement between the telephone company and Broadwing Inc., where he was chief legal and administrative officer. Smith agreed to serve as a consultant to the CEO after he left the company at the end of 2003. Brian G. Keating, a 25-year veteran of Cincinnati Bell, replaced him. “These executives are highly compensated, but they are also subject to a lot of the same things their bosses are subject to,” Aon’s Dunn says. “The days of getting a job like this and having it for 20 years are over.”

    Pulling names from proxy lists to judge a corporate executive’s worth has built-in flaws. Total compensation tends to push up executives at successful companies because stock values are a major part of compensation. Executives at companies that are restructuring or going through hard times may be left off top-earner lists even though their value may be highest as they guide their organizations through tough transitions. “Those privileged enough to be working for companies doing well show up well,” says Timberland’s Johnson, No. 6 on the list, who has spent his entire 25-year career in human resources. “It doesn’t mean that other human resources professionals aren’t making similar and more important contributions at companies going through restructuring and downsizing.”

    The database pulled out only executives who had human resources in their titles. So it’s possible that highly paid executives responsible for human resources in their companies were overlooked because they were listed by more generic titles. For example, Thomas Cody, vice chairman of Federated Department Stores, who earned $1.5 million in salary and bonus and cashed in nearly $1 million in stock options in 2003, is in charge of human resources at Federated but does not list that in his title.

Man’s world
    Looking at other common characteristics of this elite group of highly compensated human resources executives, it is clear that they move a lot, jumping from one senior management position to another. This is not a stay at home, put in 30 years and get a gold watch group. Several have had tenures of only a year or two. More than half have graduate or law degrees. Five of the 10 worked for either General Electric Co. or PepsiCo and its Frito-Lay division. The showing affirms the companies’ reputation for turning out top human resources stars. At these levels, it’s also a man’s world. Only one woman, LaNette S. Zimmerman, executive vice president for human resources and communications at NiSource Inc., was listed in Aon’s top 25 in total compensation. The Society for Human Resource Management says 70 percent of its 180,000 members are women.

    Among the newest faces in the group are Pulte Homes’ Taylor and Timberland’s Johnson. Both are in their 40s, and each made his company’s list of top-five earners for the first time. Both climbed the conventional workforce-management ladder, taking on new jobs and bigger responsibilities with different companies.

    Johnson, 47, went into human resources straight out of Middlebury College in Vermont, where he studied history. He has held senior corporate jobs where he has been responsible for labor relations, staffing, compensation and benefits, training, diversity, organizational development and security. Johnson represents what some see as a new breed of human resources leader, one who exemplifies many of the qualities that are found in top executives. He has a strong sense of the bottom line, and yet takes a fresh approach to his role.

    Timberland, he says, promotes community involvement for employees, who are given 40 hours of paid time off for community service in their first year, with paid sabbatical programs of up to six months after three years. “We believe the skills you develop in the community are the same types of skills that work in a corporate setting,” he says. He is a man who speaks with a sense of purpose that goes beyond the nuts-and-bolts functions of human resources, an executive who shows up for work in blue jeans, a button-down oxford shirt and boat shoes. All from Timberland, of course.

    As for his own success, he says that support from senior management is key. “The management team has a predisposition to say yes to HR initiatives,” he notes. “I am not in a culture designed to say no.”

    For Taylor, holding down a top human resources job requires moving into an action-oriented role. He is responsible for traditional human resources programs such as comp and benefits, but he doesn’t define his job narrowly. Neither does Richard Dugas Jr., Pulte’s chief executive officer and president. Dugas took over the company last year, and soon promoted Taylor to serve as a key strategic adviser with responsibilities in all areas of the company’s business.

    “In my opinion, the HR role has a connotation of key benefits manager. We view it differently at Pulte,” Dugas says. “We have 11,000 people working for us, and Leo has as good a knowledge of who they are as anyone in the company. He understands the company inside and out, how we make our money, what the pitfalls are. With him, it’s not about the x’s and o’s of pay programs and benefits.”

    Dugas then reels off programs that Taylor has developed at Pulte, such as a mentor program called Top Gun. Pulte hires about 3,000 people a year, and executives called Top Guns are assigned “to evaluate the rookies” so they hit the ground running. “When you have that many people coming into the company each year, there is an awful lot of integration work that has to happen,” Dugas says.

    Another of Taylor’s programs involves training emerging leaders. Pulte has more than 45 divisions, each headed by a president and a vice president. Top performers below the rank of president are identified, then are thrust into a job with a president’s responsibilities. They receive 6 to 12 months’ training in the line of fire. “In the past we would promote our best vice president and say good luck at being a president,” Dugas says. That approach had about a 50 percent success rate, Dugas says, a figure he hopes to greatly improve with the new program.

    Taylor relishes these high-profile responsibilities. He breaks down human resources executives into three groups: the cop, who focuses on policies and procedures; the caretaker, who maintains the status quo; and the catalyst, who challenges the status quo. He identifies with the third type, and insists that his staff of 30 human resources professionals also constantly challenge conventional wisdom. “I don’t want myself or my folks to be a traditionalist, a cop,” he says. Taylor’s plan to reduce the number of people on his staff from 30 to 20 does not mean he is less committed to traditional management responsibilities. What he wants is to transfer training and development programs to line managers, who he believes are best placed to do it. That would leave the human resources staff to “provide guidance and counseling throughout the organization,” he says.

    Taylor says that too many in the field of human resources migrate to the cop role. But with CEOs demanding more and more contributions to profits from their workforce leaders, Taylor says, “the profession is going to be forced to change.” When that day comes, expect an increasing number of human resources professionals to join Taylor’s elite group of handsomely paid top executives.

Workforce Management, June 2004, pp. 43-50 — Subscribe Now!

Clarification: Workforce Management apologizes for any mistaken impressions that may have resulted from reporting about the retirement of Brent Stanley, the former senior vice president of human resources at PG&E Corp. His retirement was not related to controversies over pay levels for top executives in the company, according to PG&E. “There is no question about the facts. He retired voluntarily, and there were no other issues involved except that Brent and his wife wanted to retire,” said Leslie Everett, a PG&E Corp. vice president.

Workforce Management, June 2004, p. 45 —Subscribe Now!