Why CHROs command the same pay as other CXOs

In the last two years, organisations have seen the wrath of the pandemic and also realised that ‘people’ are at the core of the business. These difficult times saw the CHROs stealing the limelight, taking strategic people decisions, which ensured business continuity.

However, given the kind of value the human resources adds to the organisation, are the chief human resource officers (CHROs) compensated for their efforts at par with other CXOs?

Not very surprisingly, for many years now, most organisations have not been paying their CHROs at par with other CXOs. In fact, a global survey conducted by the Chief Executive Group, a global business media entity, in 2016-17, showed that globally, CHROs are comparatively paid less than other CXOs, such as the COO, CFO, CMO, chief sales officer, CTO and others.

While it is accepted that the people function is one of the most vital functions in an organisation, why is it that CHROs are not paid at par with other CXO members in the organisation?

“Ultimately, everyone in an organisation is paid for performance. Apart from merely fulfilling the administrative function, if the HR becomes a change leader and a strategic partner to the business, only then can their real value be seen in the company”

Amit Sharma, CHRO, Volvo India

“I completely agree that in many organisations, CHROs are paid less than other CXOs in the company,” says Reena Wahi, head-HR, Tata Realty & Infrastructures.

Why are CHROs paid less?

There can be many reasons for this discrimination in terms of pay.

Bias: One of the reasons for a CHRO not being compensated at par with other CXOs is that there is a bias amongst many top business leaders that the HR do not understand the business.

In fact, Wahi states that this bias exists even at the board level. “Generally, the HR function does not have a seat at the board level, which actually disconnects us from the board,” points out Wahi.

Intangibility: Moreover, when we look at the HR function, many of the results or values it creates are quite intangible in nature, for instance, having a great culture.

In most companies, building a vibrant culture is the responsibility of the HR leader. Establishing a culture takes place over time and the outcome cannot be measured in tangible terms. It can only be felt.

“In case of the other ‘powerful’ functions such as marketing, sales or finance, the results are tangible in nature. They can be seen and justified in terms of numbers. That is why, very often, the inability to quantify outcomes numerically makes it difficult to gauge the value the HR function is adding,” says Mahipal Nair, CHRO, South Asia, Middle East & Africa, NielsenIQ.

Nature of HR professional: Very often, HR professionals restrict themselves to certain limits of their jobs. “I have seen that many HR leaders fail to go beyond just fulfilling the hygiene in an organisation. They choose to restrict themselves to payroll or administrative work alone,” shares Wahi.

“In a services firm, it is easier for HR leaders to prove their worth as compared to other traditional sectors”

Reena Wahi, head-HR, Tata Realty & Infrastructures

Should HR leaders be paid at par with other CXOs?

Many have realised that over the past few years, the HR has really proved its mettle thanks to major technological advances and automation of processes, which can give accurate data analytics and show what real value the HR function is adding to an organisation.

Most HR leaders believe that CHROs should certainly be compensated at par with other CXOs given the significant role they play in establishing a distinctive culture in the organisation among other things. “There are multiple examples of companies that cease to exist just because something was not right with their culture,” mentions Nair.

Does the value of the HR in an organisation depend more on the industry?

Wahi explains to HRKatha that in the services industry, HR processes are more valued because in such businesses, value is directly created by the people in the organisation. “In a services firm, it is easier for HR leaders to prove their worth as compared to other traditional sectors,” enunciates Wahi.

However, not everyone agrees. “Whether one is in the services business or the products business, it is the people who add value to the offerings. So, it will be incorrect to say that the value of the HR is more in the services sector,” asserts Amit Sharma, CHRO, Volvo India.

“GE is a classic example of a company where people processes are highly valued,” adds Nair.

What can bring a change?

Going the extra mile: The value accorded to HR and people practices varies from company to company.

“In case of the other ‘powerful’ functions such as marketing, sales or finance, the results are tangible in nature. They can be seen and justified in terms of numbers. That is why, very often, the inability to quantify outcomes numerically makes it difficult to gauge the value the HR function is adding”

Mahipal Nair, CHRO, South Asia, Middle East & Africa, NielsenIQ

As per Sharma, any organisation will pay people for adding value and showing performance. After all, every commercial entity is here to do business. He says that CHROs who do not move beyond just managing to complete the hygiene in an organisation, can never expect to be compensated at par. “Ultimately, everyone in an organisation is paid for performance,” states Sharma. “Apart from merely fulfilling the administrative function, if the HR becomes a change leader and a strategic partner to the business, only then can their real value be seen in the company,” opines Sharma.

Understanding the business: “Understanding the business is a hygiene factor for any CXO member at that level,” says Nair. If the HR leaders do not understand the business of the company or what the employees go through as part of their work / daily routine in the company, how can they be expected to take up a strategic HR leader role?

Experiencing the commercial side: It is frequently observed that people from a commercial background who take up CHRO roles command more respect.

“In fact, it would be helpful if organisations begin giving opportunites to HR professionals to move to commercial roles and experience them,” suggests Wahi.

Is it necessary for HR professionals to move to a commercial role?

It is not necessary to have a commercial role as an HR professional to prove your worth. After all, one is not hired in an HR role for brilliant business skills. As an HR leader, one must have great people skills.

“It is not necessary at all. One can still understand the business by collaborating and partnering with other functions. However, having some experience in a business role really does add value,” says Sharma.

Things are improving

It seems that things are changing. A recent report by Michael Page, which analysed the compensation of CHROs and HR heads with other CXOs showed some improvement. While a CFO may be earning more than a CHRO in a large organisation, the base salary of the CHRO is at par with other functions such as the CMO, CTO, CIO, or even Sales, showed the India salary report.

Adding value is something that any HR leader can do. The ways to do it are many — by saving costs on HR processes or talent processes, or by building unique capabilities in people and give an edge to the organisation. It is up to each individual HR leader, really.