HR Compensation Continues To Rise

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Rising compensation reflects an improving economy and HRs role in corporate growth.

After many months of uncertainty, the economy appears to have turned a critical corner. Positive signs are everywhere—sales are up, and employers have reduced budget cutbacks and lifted salary freezes. HR professionals also are seeing signs of better days ahead, as reflected in their compensation. The advances in pay levels and salary increases that HR positions made over the past few years continued and strengthened this year.

Select HR positions directly related to recruiting, training, compensation and benefits have seen especially significant pay increases this year as companies have begun shifting their focus to growing their businesses and making greater investments in employees.

Additionally, contending with new legislation, such as the Sarbanes-Oxley Act and the changes to the Fair Labor Standards Act, is having an impact on HR operations and is reflected in pay levels. (For more information about compliance efforts’ effects on HR pay, as well as a more extensive analysis of longer-term trends, see “Worth Every Penny”.)

Leading the way, median total cash compensation for the position of managerial/professional recruiter escalated 10.4 percent to $65,900. Other positions showing sizeable pay increases include:

• Compensation and benefits analyst (up 9.3 percent to $55,700).
• Trainer (up 9 percent to $51,100).

These findings come from the 2004 Mercer Benchmark Database Human Resource Management survey, a compensation study conducted annually by Mercer Human Resource Consulting in conjunction with the Society for Human Resource Management. The survey, considered the leading source of pay information for the HR profession, includes data provided by more than 1,900 U.S. organizations. It covers 63,326 HR professionals in 117 positions, ranging from top management to administration. (For more information about the survey methods, see “About the Survey.")

For each position, the survey report provides statistical summaries for base salary, short-term incentives, total cash compensation (which is base pay plus short-term incentives), pay ranges, and short- and long-term (e.g., stock options) incentive eligibility and valuation. The survey also examines pay structures and pay increase practices affecting HR professionals.

This article features a summary of key findings from the 2004 survey, as well as comparisons to survey data from previous years. Since factors such as scope of responsibility, industry and company size significantly affect pay levels for many positions, the information provided here illustrates general compensation trends in the HR profession.

General Compensation Trends

Overall, this year’s survey shows that salaries for HR professionals are improving, along with annual bonuses and eligibility for incentive pay, including stock options. Pay movement for many HR positions generally was stronger in 2004 than it was in 2003. (For details from last year’s survey, see “On the Rise” in the November 2003 issue of HR Magazine.)

This year, 10 of the most highly populated human resource positions in the survey experienced increases in pay. Of these 10 positions, five showed pay increases greater than 5 percent. (Overall average pay increases in the United States across all levels, functions and industries fell in the range of 3.5 percent to 4 percent.) The largest increase in this group was for trainers, who saw a 9 percent spike in pay. Other base pay increases of note include 7.5 percent for the top HR management executive, 6.5 percent for senior compensation analysts, and 6.3 percent for employment and recruiting managers. This suggests that the skills and experience of these functions are becoming more valued. (See Table 1: Pay Levels for Common HR Positions.)

The big gains in pay for these roles is not surprising. They align with top HR concerns of managing benefits costs, retaining employees and ensuring competitive reward programs. Escalating health care costs will continue to drive measures for providing benefits more cost-effectively. Additionally, as the economy improves, retaining and motivating top-performing employees is essential to preparing for future growth. The increasing complexity of ensuring compliance in the areas of compensation and corporate governance suggests that these HR roles require a more sophisticated skill set, which would be expected to command higher salaries in the market.

Base Pay Vs. Variable Pay

As in past years, the majority of the pay growth documented in the 2004 Mercer Benchmark Database Human Resource Management survey comes from variable pay rather than from base pay. For more than half of the positions in the survey, the increase in median total cash compensation from 2003 is larger than the change in median base pay.

For instance, the position of human resource director saw 3.6 percent growth in median base pay from 2003 to 2004, but 5.6 percent growth in total cash compensation. Another example is senior benefits administrator, which saw 8.6 percent growth in base pay and 9.9 percent growth in total cash compensation.

So the good news is that HR professionals, like other employees, are eligible to earn more. The potential downside is that more of those potential earnings are at risk in the form of short-term cash incentives.

This is reflective of a growing trend over the past few years of putting more pay at risk at lower levels in the organization. Companies are continuing to use variable pay rather than base pay to differentiate their high-performing employees. The key advantage for employers: These one-time payments must be re-earned each year and do not compound over time (as base salary increases do). In addition, rewarding strong performers who are essential to the future of the company helps reduce the risk of losing them as the economy picks up by making additional compensation available to them through incentives.

The 2004 Mercer Benchmark Database Human Resource Management survey examines the use of both long-term incentives (LTI) and short-term incentives (STI) for all positions included in the survey. As in past years, senior-level executives are most likely to be eligible for both types of incentive compensation. Among the most highly populated executive positions in the survey, approximately two-thirds are eligible for LTI. The most common incentives awarded to this group include nonqualified stock options, followed by incentive stock options and restricted stock.

In addition, about nine out of 10 of these top HR executives are eligible for STI, such as annual bonuses. Actual awards, which were more generous than 2003 target awards for the majority of the group, were almost as high as 50 percent of mean base pay. This suggests that both corporate performance and individual contribution (the primary drivers of incentive pay) were on the upswing. Most fell in the range of 27 percent to 37 percent of mean base pay. (See Table 2: HR Executive Eligibility for INcentives.)

For 10 manager positions in HR, about half are eligible for LTI, and approximately eight in 10 are eligible for STI. Executive compensation managers are more likely than all other HR managers to be eligible for both types of incentives. In addition, they have the highest targeted and actual payouts for STI. This is indicative of the increasing importance of managing executive remuneration in an uncertain and evolving legislative environment. (See Table 3: HR Manager Eligibility for Incentives).

There is some evidence, however, that the relative mix of short- and long-term incentives appears to be changing. Companies are becoming more selective in their use of equity pay—such as stock options and restricted stock—and STI often are used to make up the difference. For example, in last year’s survey, the position of top HR management executive (without industrial relations) showed LTI and STI eligibility of 63 percent and 83 percent, respectively. This year, LTI eligibility dropped to 57 percent, while STI eligibility increased to 86 percent.

With companies continuing to address the reforms to accounting regulations, this trend is likely to persist at both the executive and management levels.

Functional Pay Differences

Pay levels within HR continue to correspond closely to functional areas—employee relations, benefits and training, for example—particularly for professionals in middle and senior management.

Beyond the top corporate HR executive positions, international HR responsibilities generally translate into the highest pay (median total cash compensation of $188,000 in 2004). The top corporate executive responsible for both compensation and benefits ranks fourth, with median pay of $176,200. The top corporate organizational development executive ranks fifth, with median pay of $174,100. HR leadership continues to demand more and in turn provide greater reward opportunities. (See Table 4: 10 Highest -Paind HR Executives.)

Among managers in HR, pay for executive compensation managers (median total cash compensation of $121,800) continues to outpace pay for all other managers, reflecting the fact that developing executive compensation programs is more complex and sensitive than other types of HR tasks. This position is followed by organizational development/training managers ($103,400), labor relations managers ($102,600) and compensation managers ($100,800).

Managers with total cash compensation in the range of $90,000 to $100,000 include human resource managers, employment and recruiting managers, HR information systems managers, EEO/diversity managers, and compensation and benefits managers. Positions in the median total cash compensation range of $80,000 to $90,000 include benefits managers, relocation services managers, employee relations managers, employee communications managers and training managers.

Payroll manager is the only manager position with total cash compensation of less than $80,000. (See Table 5: Pay Variations for Mid-Level HR Positions.)

Industry, Size And Regional Differences

Various demographic factors, including industry, company size and geography, also influence pay levels for many HR professionals. Typically, the highest pay levels for HR positions are found at banking/financial services, utilities, energy/mining and manufacturing firms. Employers in the government, nonprofit and education sectors generally are on the lower end of the pay scale. Even within the private sector, pay varies immensely by industry.

For instance, the median total cash compensation for a human resource director in banking/financial services is $171,800 compared with the retail/ wholesale ($129,600), professional services ($124,300) and health care ($99,900) industries.

Such pay variations are just as evident in lower-level HR positions. Median total cash compensation for a senior compensation analyst—one of the most common positions in HR—is highest in the utilities industry ($85,100) and lowest in education ($57,600), showing a wide spread of $27,500. Pay for this position in the nondurable manufacturing ($68,900), banking/financial services ($75,300), retail/wholesale ($68,300) and health care ($61,200) industries all fall within that range. (For industry variations for other jobs, see Table 6: Pay Variations by Select Industries.)

Pay also varies by company size, but does not always correspond directly to increases in company size. Rather, company size seems to influence pay most notably at the extremes—for HR professionals in very small and very large companies. For instance, median total cash compensation for a human resource manager in a company with less than 1,000 employees is $80,900, compared with $91,700 in a company with 1,000 to 3,499 employees; $90,900 in a company with 3,500 to 9,999 employees; and $97,200 in a company with 10,000 or more employees.

As within industries, variations in pay by company size are apparent in lower-level HR positions as well. (See “Pay Variations by Number of Employees"). Geography also plays a role in determining pay for HR professionals. Regionally, the highest pay is found in the Northeast and on the West Coast, mirroring geographic pay differentials in the workforce at large. A benefits manager, for example, would receive median total cash compensation of $94,700 in the Northeast and $99,400 on the West Coast, but much less in the North Central ($83,400), Southeast ($82,900) and South Central ($87,700) regions.

A similar pattern is seen for a senior human resource generalist. Based on data from companies of all sizes, this position would receive median total cash compensation of $75,100 in the Northeast and $76,800 on the West Coast. In the North Central, Southeast and South Central regions, a human resource generalist would receive $69,700, $72,400 and $63,500, respectively.

These geographic variations are consistent with variations for all jobs across all industries.

Joe Vocino is a Philadelphia-based senior consultant in the performance, measurement and reward practice of Mercer Human Resource Consulting. He can be reached at (215) 982-4270 or joe.vocino@mercer.com