By Elliot H. Clark
I live in Philadelphia and I remember the media hullabaloo about the compensation paid to the baseball star Bryce Harper to join the local team. As one grave-faced sportscaster put it, “Well, there is a market value to talent -this franchise just got the bill.” I decided two things right at that moment: First was to never take market economics lessons from a guy who reads game scores for a living, and second was to see if the research team at HRO Today could figure out what drives the salaries for top executives in human resources. You will find the summary report in our upcoming second annual CHRO Today special edition (published with October), but I thought I would give you a few highlights.
We pulled the publicly available data on the Fortune 500 and found the CHRO compensation data on 88 senior-level HR executives from those companies. With a sample size of nearly 18 percent, we felt we had enough data to do a very valid market analysis. We split the market into the Fortune 50, the Fortune 100, Fortune 200, and Fortune 500 bands. We also looked at correlations to salary, total cash compensation, and total non-cash compensation (stock options and grants).
We took the data set and began to look for the correlations. The factors we sought to correlate were market capitalization, earnings per share (EPS), earnings before income tax, depreciation and amortization (EBITDA), and finally, total employee headcount.
I was personally rooting for employee headcount as it is human and we want to keep the human in human resources. What we found though, was anything but human. It turns out that the C-suite, including HR, must be engaging in a negotiation that begins and ends with “Show me the money.” In fairness to the HR community, I doubt that it is conscious -but the greatest correlations relate to financial statistics.
First, the biggest surprise was the broad spread of HR compensation packages confirms that compensation packages are individually-driven, and below the Fortune 50, there were no significant correlations. What this means is if you work for a company in the Fortune 500 from 51 on down, you just push to get the best deal you can get -and based on factors we could not correlate, you may get it.
However, we did find statistically significant correlations in the Fortune 50. Among the Fortune 500, there was a “coefficient of correlation” of about 0.8 to several factors. A coefficient of correlation of 1.0 is perfect and below 0.5 is weak, so 0.8 is actually pretty strong.
So what drives CHRO compensation in the Fortune 50? There is a strong correlation between salary and the organization’s total compensation, which includes stock incentive awards and company EBITDA. If a company is more profitable, the HR leader is making more. There is also a similar correlation between salary and EBITDA. We also found correlations between restricted stock awards and EPS and cash compensation and EPS.
So money talks and, well, you know what walks. If you work for a company or are looking to join a company with strong profitability in pure EBITDA or good earnings distributed over its outstanding stock float, you can make more money and you can ask for more money.
As I said, the summary report broken up by market level and other factors will be available in upcoming issue of CHRO Today -our annual special edition honoring the CHRO community. The full report with all the data will only be available to members of our CHRO Today Executive Network (C-TEN). It is a fascinating view into the drivers of the market and the importance of HR, and a tribute to HR’s impact on company performance. Look for it in October.