Vol. 51, No. 11
Top compensation and benefits executive's pay is on the rise--along with their profile--as they implement global rewards strategies.
With companies striving to establish better lines of sight between employee performance and rewards, compensation and benefits professionals’ responsibilities are increasing—and so is their pay. Total compensation figures for top HR executives specializing in compensation and benefits are on the increase, reflecting the rising priority of developing rewards strategies that align with overall business strategies.
Increasingly, those strategies are global, as more companies enlarge their international footprints. This adds scale and scope to the efforts of compensation and benefits professionals, much as HR positions in recruiting and training rose in value in recent years when signs of economic recovery led employers to expand and develop their workforces. The current pay trends involving the compensation and benefits areas point toward a new era of organizational rewards—an era guided by rewards professionals whose strategic value to their organizations is becoming increasingly apparent.
(For an example of an HR department leveraging human capital through an effective compensation program, see the article on the selection of the Kimberly-Clark Corp. for the Society for Human Resource Management’s inaugural Strategic HR Leadership Award.)
This year, according to Mercer Human Resource Consulting’s annual human resources compensation survey, nearly one-third of the top 20 jobs with the highest percentage increases in total median cash compensation over 2005 fall within the compensation and benefits disciplines. (See Table 1: 20 HR Positions with the Highest Percentage Increases in Total Median Cash Compensation over 2005.)
In addition, base pay improved significantly among several of the survey’s most highly populated positions—some of the most common positions in HR. Increases occurred in high-profile roles such as top corporate HR management executive (without industrial relations responsibilities) and HR director. Two positions—intermediate HR assistant and general recruiter—saw double-digit gains. (See Table 2: Pay Levels for Common HR Positions.)
In general, HR seems to have fared well, relative to employees as a whole. Pay increases for seven of those 10 positions were higher than the national average pay increase of 3.7 percent
projected by Mercer for 2006. (The projection, in the Mercer 2006/2007 U.S. Compensation Planning Survey, reflects surveyed employers’ plans for increasing compensation during the year.)
Although the survey results show significantly higher pay in 2006 for compensation and benefits professionals in general, it must be noted that not all jobs in those specialties saw significant pay increases over 2005. In fact, among 10 of the most highly populated positions in the survey, two compensation and benefits roles—senior benefits analyst and benefits manager—had median increases of just over 1 percent. This could stem from various factors, such as the topping out of pay increases for those positions over the course of several previous years. For example, last year median total cash compensation for the position of senior benefits analyst rose 6.1 percent.
Rewards For Strategic Skills
Compensation and benefits executives’ rising prominence on the pay charts results from the increasing need for their special skills. As employers build out their global platforms, for example, they must develop adaptable total-rewards packages that meet the needs of culturally diverse employee populations. (Because of their cultural differences, far-flung employees may value different compensation approaches.) But changes in accounting standards and corporate governance requirements in the United States and elsewhere can complicate efforts to establish overall consistent compensation policies. So HR professionals who specialize in compensation and benefits are taking on more-strategic roles in developing rewards strategies that integrate overall business goals while maintaining regulatory compliance, often across diverse geographic areas. (In recent months, top compensation executives acquired still another complex function when the Securities and Exchange Commission adopted new rules on executive compensation disclosure. For more information, see “ HR’s New Role in Executive Pay.”)
Similarly, important demands are emerging on the benefits side as organizations struggle to balance employees’ health insurance expectations with employers’ rising costs of providing coverage. Concurrently, the emerging trends in consumer-driven health care are creating strategic opportunities and complexities that require employers to have the best and the brightest HR professionals—and to pay them commensurately. Rising costs in health care benefits raise the value placed on HR professionals who can effectively manage those costs.
Compensation and benefits positions that showed sizable percentage increases in median total cash compensation this year compared with 2005 include:
Compensation and benefits administrator, up 22.2 percent over last year, to $65,181.
Compensation and benefits director, up 11.3 percent, to $142,000.
Associate benefits analyst, up 10.5 percent, to $47,662.
Compensation director, up 10.3 percent, to $148,867.
Compensation and benefits analyst, up 9.8 percent, to $65,843.
Benefits director, up 9.3 percent, to $128,462.
Clearly, global expansion, cost management, process improvement and governance are driving the need for global compensation strategies. In fact, according to Mercer research in recent years on compensation management, design and administration, 53 percent of organizations expect compensation strategies to become more globally oriented. This requires a framework for compensation strategy that is centered less on traditional approaches, such as base salary plus bonus and/or incentives, and more on a total-rewards approach. It’s an approach that drills down on the value balance of reward-program components, including base pay and annual increases, incentives (both short term and long term), benefits packages, and career training and development.
Therefore, today’s and tomorrow’s compensation and benefits professionals must develop expertise in approaches such as workforce segmentation, which strategically allocates compensation across workforce segments—from business units through job families, job levels, skill sets and geographies. Segmentation helps to ensure the most appropriate allocation of an organization’s overall reward spending.
HR professionals who design and execute the workforce-segmentation approach to compensation management are playing more-intricate roles within their organizations, and the observed increases in pay for the more-strategic compensation and benefits positions underscore this shift.
Variable Pay On the Increase
Three trends—strengthening of the economy, an increasingly competitive labor market, and employers’ rising interest in attracting and retaining top talent—are helping to bolster the use of bonuses as a way to increase compensation. Bonus pay enables companies to differentially recognize and reward their strongest performers and to sustain that high performance, without investing as heavily in base pay gains, which add to fixed costs.
In this latest survey, as in the past, the year-over-year change in median total cash compensation for more than half of the positions is larger than the year-over-year change in median base pay. In short, then, more of HR professionals’ total compensation is being delivered through incentives and less through base pay.
For example, median total cash compensation for the increasingly strategic position of compensation and benefits director increased by 11.3 percent from last year, but median base pay for that position grew only 3.9 percent. And a compensation and benefits analyst whose median total cash compensation grew by 9.8 percent nonetheless saw base pay grow by only 5 percent.
Such statistics compiled over the past several years confirm that variable pay is an entrenched compensation trend that will undoubtedly continue. Companies remain cautious about raising base salaries and so are relying more and more on incentives and bonuses to reward strong performance. This shifts more pay to top performers, boosting retention of these valuable employees—an important strategy as the labor market becomes more competitive. Also, structuring incentive compensation more aggressively than base pay reduces the risk of boosting salaries to unsustainable levels.
The Use of Incentives
This year, as in prior years, the survey shows that senior-level executives are most often eligible for long-term and short-term incentives.
Among the most highly populated executive positions in the survey, approximately two-thirds are eligible for long-term incentives; the most common include nonqualified stock options, followed by incentive stock options and restricted stock. In addition, the majority of top HR executives are eligible for short-term incentives such as annual bonuses.
Actual awards were as high as 49.7 percent of mean base pay. (See Table 3: HR Executives’ Eligibility for Incentives.) Most awards fell between 28 percent and 38 percent of mean base pay—comparable to 2005 payouts and roughly 20 percent to 30 percent higher than awards for many non-HR jobs.
Among the most highly populated HR manager-level positions in the survey, about four in 10 are eligible for long-term incentives and approximately eight in 10 are eligible for short-term incentives. Executive compensation managers are most likely to be eligible for both types of incentives. They also receive the highest target and actual payouts for short-term incentives, at 20 percent and 22.5 percent, respectively. (See Table 4: HR Managers’ Eligibility for Incentives in 2006.)
Ups and Downs In Executive Pay
The highest-paid HR executives who saw the highest gains in median total cash compensation over the past year were top employee relations executives, up 12.4 percent, and top corporate HR management executives (with industrial relations responsibilities), up 7.4 percent. (See Table 5: 10 of the Highest-Paid HR Executives.)
Surprisingly, there was a 3.4 percent fall-off in salary for top subsidiary/group HR management executives (with industrial relations responsibilities), from a median total cash figure of $246,300 in 2005 to $238,000 in 2006. (Attempting to interpret that salary decline for a position that remains highly compensated may not be worthwhile because it might simply reflect a change of incumbents in a category that has few occupants.)
Among mid-level HR professionals, pay for executive compensation managers continues to outpace pay for all other managers. Next in the salary rankings are labor relations managers and organization development/training managers. (See Table 6: Pay Variations for Mid-Level HR Positions.) These are the roles that have occupied the upper ranks of mid-level HR professional pay year after year.
Among the positions in the table, the one that showed the largest increase is that of EEO/diversity manager, which jumped to $103,000 in median total cash compensation this year from $94,700 last year.
Some Differences Are Enduring
The influences on HR professionals’ compensation range from company size and type of business to the region of the country where it operates and whether it’s organized for profit or is a nonprofit. Such influences have remained relatively stable over the years, affecting not only top HR executives but also lower-level HR positions. Within the lower ranks, however, the correlation between company size and compensation is frequently more straight-line, meaning pay tends to rise in connection with company size.
Geography also matters—for HR professionals at all levels. Over the years, the highest pay levels have been found in the Northeast and on the West Coast, mirroring geographic differentials in the workforce at large. For the two positions selected this year to illustrate regional differences, the top pay levels were in the Northeast. (See “Regional Differences in Median Total Cash Compensation For Top Compensation Executives and Top Benefits Executives.")
HR salaries also differ by economic sector and organizational structure. As in past years, the highest pay levels are found in finance and banking, utilities, energy and mining, and manufacturing.
Companies organized for profit generally pay more than nonprofit, governmental and educational organizations. Differences in compensation for the same job title can vary by almost $30,000.
Even within the higher-paying private sector, there are wide variations in pay by industry. For example, the median total cash compensation for a human resource director in finance and banking is $165,100 (down from $169,300 in 2005), compared with $150,000 (up from $136,000) in the professional services industry, $127,400 (up from $125,000) in retail/wholesale, and $117,800 (up from $108,600) in health care. (See Table 7: 2006 Pay Variations by Select Industries.)
Pay variations can be found in lower-level HR positions as well. Median total cash compensation for a senior compensation analyst, for example, is $66,200 in durable-goods manufacturing but $78,400 in finance and banking.
Joe Vocino is a senior consultant in the Human Capital Advisory Services business of Mercer Human Resource Consulting. Based in Philadelphia, he can be reached at email@example.com.