What are HR directors worth?

first_img Comments are closed. Whileother company directors seem to be paid vast sums regardless of theirperformance, HR directors do not. Scott Beagrie finds out what HR needs to doto boost its image as well as its pay packetExecutive remuneration has been a big headline issue of late. The businessworld is reeling from the recent bout of executive payouts that have seen thelikes of Jean-Pierre Garnier, chief executive of pharmaceuticals companyGlaxoSmithkline, rewarded with £7m in earnings plus the prospect of a £22mpayout if the company is taken over. The list of large bonuses to executives that have overseen falling profitsand share prices is long, and has been greeted by a chorus of disapproval bydisgruntled shareholders. Even the Department of Trade and Industry hasresponded by publishing Rewards for Failure – a consultation paper on curbingso called ‘fat cat’ pay. Executive pay awards in the UK HR arena, however, don’t tend to hit nationalheadlines in quite the same way. So it was a big day for the profession when itwas announced 18 months ago that Jim McKenna, then group HR director of Logica,was ranked as the fourth-highest paid director in the country with a £7.2maward. It made a big statement about the perceived value of the profession, butsadly the case of McKenna – now chief executive of the UK operation ofLogicaCMG – doesn’t reflect the full story of HR remuneration in the UK. Richard Cockman, partner in the human capital group at Watson Wyatt, saysthe consultancy’s research shows that an HR director on the executive committee(where most are found) will typically earn 10 to 20 per cent less than otherfunction heads. And even those on the main board are still earning 10 to 20 percent less than other directors reporting to the chief executive. Is HR really perceived as a lesser function in the UK, and are many HRdirectors being sold short when it comes to pay and rewards? And what is themarket price for HR? The answers, it seems, are yes, yes and a rather greyarea. “HR is in the second division at least in terms of function,” saysMark Thompson, head of reward at pay specialist the Hay Group. For the secondyear running, a study from Croner Rewards shows the median salary for an HRdirector as falling below comparable posts in other functions. The latest findings from the Personnel Rewards 2003 survey, conducted byCroner Rewards in association with the Chartered Institute of PersonnelDevelopment (CIPD), shows the average pay for HR directors is £57,449 – 4.3 percent below the average for other functions. This is a marginal improvement onlast year’s figure, but a significant reversal from 2000, when average pay forHR directors was 3.2 per cent higher than other functions. Senior HR managers also lose out this year with an average annual pay of£46,207 compared with £47,277 for all other functions – a differential of 2.3per cent. A major factor in this discrepancy seems to be how the role and its variousresponsibilities are perceived within organisations. The chief executive, chieffinancial officer and operations director positions carry enormousresponsibilities. This is particularly true in FTSE 100 companies, ranging fromcorporate governance and managing investor relations through to strategicplanning. Sadly, people management strategies still aren’t given the sameprominence, and indicative of this is the fact there are only around 15 HRdirectors on the main board of companies in the FTSE 100. People management practices Ironically though, the operations director is likely to be responsible for implementingsome of the people management practices devised by HR. “Often there is awoefully inadequate approach to people issues by the CEO and financial andoperations directors on the board unless you have a ‘John Harvey Jones’-typefigure, who is obviously hugely engaged and involved with people,” saysThompson. “Most organisations aren’t lucky enough to have a CEO in thatposition.” Thompson’s sentiments are echoed by Richard Lamptey, a partner in theexecutive compensation division of Mercer Human Resource Consulting. “There is a perception that the HR director is not a strategicmanagement role as compared with finance, marketing or operations. They arethere mainly to implement what the board – and, in particular, the CEO – hasdecided on the people strategy, rather than actually formulate it and presentit in their own right to the board,” he says. “That is [one of thereasons] why we tend to see HR directors as somewhat lower paid.” Yet in the not too distant past, when HR (or personnel as it was then) washeavily involved in tackling industrial relations head on, it was perceived asfar more influential than it is now. Sir Pat Lowry, who was director of industrial relations and later directorof personnel at car manufacturer British Leyland during the strike-torn 1970s,was chief executive Sir Michael Edwardes’ right-hand man. “Nobody wouldhave said that he wasn’t a major pillar of company strategy,” saysCockman. Former director of HR at oil giant BP, Nick Starrit, now a consultant on HRstrategy and a non-executive director at RebusHR and Capital ResourceConsulting (who refuses to discuss his remuneration while at BP), contends payshould come down to job evaluation which recognises the size and contributionof a job in relation to the success of the enterprise. “Base pay still reflects the size of the portfolio you’ve got tomanage. It may be that the HR portfolio is perceived under a company’s jobevaluation system to be as large, for example, as sales and marketing,” hesays. “It’s not been my experience, but my view is that big ticket jobswith responsibility for the predominant profit and loss of a company willcommand higher base pay.” By far the area that attracts the most flack from fellow directors and linemanagers – and the one that affords most opportunity for HR to increase itspersonal profitability – is its lack of alignment to real business issues. Theonly way to combat this is to heed the clarion call of the likes of DaveUlrich, John Sullivan, Tom Peters et al for HR to reinvent itself as astrategic business partner that can influence the board and the direction ofthe business. These are the kind of HR individuals Aine Hurley, partner at executivesearch company Odgers, Ray and Berndtson, has conducted major searches for onbehalf of Royal Mail and BT in the past nine months. In both cases, she says,the company’s chairmen wanted to recruit individuals with ‘very commercialoutlooks’ and general management experience who also happen to be HRprofessionals. “I know [the potential to be a change agent] directly impacts onremuneration because organisations are looking for a new breed of HRdirector,” Hurley says. “It is moving the HR role into something thathas a much wider contribution to make to the business: a change agent, afacilitator, an enabler or culture changer. Therefore the person needs to bevery credible with line managers and to be able to talk a good business story,not just a functional one.” She adds: “There is an upward pressure for these commercial changeagent-types of HR director and an upward pressure on the remuneration. They areat a premium because these are very big jobs.” Degree of risk There are, of course, downsides to HR being recognised as a ‘big job’ –principally that if you fail to deliver, you won’t be duly recognised orrewarded, and at worst, your number could be up. “If you want to get paid the same as your peers, you need to share thesame degree of risk,” says Ralph Tribe, vice-president of HR at GettyImages. “The concept of risk is fundamental to how much you getpaid.” Tribe says his pay is exactly in the middle of what other VPs get paid atthe company, and believes his remuneration reflects both the level of risk heaccepts as part of his job, and HR’s constant alignment with the organisation’sbusiness issues. At Getty Images, HR was the architect of a project that wouldsee a switch to a new business model and the headcount reduced by 50 per centas a result of integration, acquisition, and overlap. “You normally need a stimulus to generate quite aggressive changes, andthe way we did this was by setting a target around headcount reduction based onwhat we believed the optimum size of the business should be in a fully digital,fully integrated state,” says Tribe. “A lot of the reason we havebeen so successful is due to a very rapid integration strategy. If that hadbeen wrong, we could all have been fired.” If HR wants a lesson in successful reinvention, it could take a leaf out ofthe finance department’s modus operandi, says Hay Group’s Mark Thompson. Hereckons the function has managed to transform operational financial roles suchas the chief accountant who ran “the amazing drudgery of paying invoicesand managing credit control” into a strategic leadership role of financedirector. “HR doesn’t seem to have succeeded in doing this, but that’s the modelit should focus on,” says Thompson. “There should be a head of HR orpeople services that is quite separate from [the position of] HR director whowill focus on issues such as ‘what kind of organisation do we want to be’, and‘what kind of culture do we need to support the business strategy?’ It meansbeing heavily engaged with strategy and planning, but linking the big peopleissues to that business strategy and making it happen.” One of the ways in which HR can tangibly demonstrate its worth to the boardis by providing people management data on which to base business strategies. Developments such as Watson Wyatt’s Human Capital Index and Dave Ulrich andMark Huselid’s HR Balanced Scorecard are all attempts to measure theeffectiveness of HR. While they have their critics, they do represent the bestchance for HR to deliver on this front. “HR directors have got to start positioning themselves and the workthey do as being absolutely crucial to the forward strategic thinking of thebusiness,” says Mark Lamptey. “They have to start thinking about howthey demonstrate to the rest of the board the value of the functions, how theymeasure the performance and work of their functions and of the contributionthey make to the business.” Probably the only other area deemed to have an impact on the overall rate ofreward for HR, is the vexed subject of qualifications, although much has beendone to improve the status of HR’s professional qualifications – not leastgaining chartered status. Refreshingly, at director level, fellows of the CIPDcan expect to earn around £12,500 per annum more than non-members, while seniormanagers who are CIPD members could add up to another £1,600 to their basesalaries. There is a view in some quarters, however, that people managementqualifications don’t carry the weight that other chartered or businessmanagement qualifications do such as accountancy, management and marketing. Allied to this is the notion that individuals can (and frequently do) enterthe profession from other disciplines without relevant qualifications becausethe sector offers a freedom of entry that others don’t. There are alsoinstances where the HR position has been combined with other roles such asfinance director or company secretary, which can also diminish the function’simportance. It wasn’t so long ago that Shell’s HR and finance director were oneand the same person, for instance, while the HR director of Allied Domecq’salso wears a finance hat. “There are lots of people who feel they can come into HR managementhaving come from other backgrounds. They have been practical engineers, they’vedone other things, and they think: ‘I’m able to manage people and look afteradmin and stuff’,” says Lamptey. “Compare that to the top people infinance, who are likely to have chartered accounting or another businessqualification.” Mega salaries Although HR director salaries rose more than expected this year, it islikely to be some time, if at all, before their rewards routinely hit theheadlines as they do in the US. A report at the end of last year carried outfor Society for Human Resource Management (SHRM) by Mercer, detailed thatDennis Donovan, executive-vice president of HR at Home Depot Inc, earned$21.2m, making him the company’s second highest paid executive for 2001. Thismega-bucks reward is significant not only because of the amount, but alsobecause it showed how HR chiefs are gaining financial parity. Mercer’s findings also showed that by achieving business results,”senior HR executives have earned a seat at the executive table equal totheir colleagues in finance, operations, marketing and other corporatefunctions” states the SHRM HR Magazine. There has been a great deal more clarity about executive earnings over thepast five years which can only benefit the profession, but there is still someway to go. In line with what the SHRM report demonstrates in the US, Starritpoints out that HR directors, whether they sit on the board or not, have noautomatic right to equal rewards. He says: “What is more important is that the HR director, or head ofthe function, is seen to be contributing to the commercial success of the enterprise– albeit through the people dimension – and they are doing that in a tangibleway that will make people say ‘wow!’” www.celre.co.ukwww.haygroup.co.ukwww.mercerhr.co.ukwww.watsonwyatt.comPersonnel rewards 2003: How HR ranks in the pecking orderWhen it comes to pay, a variety offactors naturally come into play, including geography and company size. An HRprofessional in London, not unexpectedly, comes out on top with a median salaryof £28,625, which is nearly a fifth above the national average. Practitionersin the West Midlands fare worst with £21,078, which is 12 per cent below thenational average. When it comes to size, average earnings for an HR director atthe helm of a company with a turnover in excess of £500m can earn £67,000,which is 16 per cent above the average.The Personnel Rewards 2003 survey shows the gender gap hasalmost closed, with female HR directors now earning just 1.3 per cent less thantheir male colleagues, compared with 5.6 per cent last year.Changing jobs is also a good thing as HR directors who havemoved in the past 12 months have gained a 7 per cent premium on the surveyaverage of £57,449. The communications sector is where practitioners can earn themost money, recording 47 per cent above the all-sector average, while travel isthe lowest paid at nearly a fifth (18per cent) below the average. Related posts:No related photos. What are HR directors worth?On 17 Jun 2003 in Personnel Today Previous Article Next Articlelast_img

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