CHROs at Health Care and Tech Firms Are Best Paid, Study Shows

Chief HR officers (CHROs) have been rising in stature at large public companies and, as a result, their compensation is increasing, new research reveals. Bonuses, meanwhile, are becoming a more common and more important piece of CHROs' compensation plans at companies of all sizes.

At the 500 largest U.S. publicly traded companies, median CHRO compensation grew from $1.6 million to $1.7 million from 2015 to 2016, according to HR Executive Pay Trends, a report by pay data firm Equilar.

The report analyzes compensation for top HR executives in fiscal year 2016, the most recent year for which complete pay data is available. Of the 500 largest companies, 214 reported HR leaders' compensation in publicly disclosed Securities and Exchange Commission filings or responded to Equilar's annual survey.

At the largest publicly traded companies, CHROs in health care and technology outpaced the median pay for CHROs in other industries, the findings showed:

• Health care CHROs saw about a 16 percent increase in median pay, reaching $2.2 million in 2016.
  

• Tech firm CHROs, while seeing a much smaller increase—growing about 4 percent to $1.9 million—followed as the next highest-paid HR leaders.
  

• Utilities firm CHROs experienced the biggest uptick in pay between 2015 and 2016, with about 15 percent growth to median pay of $1.4 million.
  

"We are seeing a progressive and positive trend toward companies viewing the HR function far more strategically, especially in sectors where talent acquisition has always been competitive," such as the health care and tech sectors, said Michael Bergen, managing partner of executive search firm Allegis Partners U.S. and the firm's global HR practice leader. "A CHRO can add the most value at an organization experiencing internal disruption, indicating why they may be so highly valued at health care and technology companies."

Pay for Performance More Prevalent

Aligning compensation to specific performance incentives has become more popular across the C-suite, and this trend is reflected in HR executives' compensation as well. Equilar reports that nearly 30 percent of CHRO pay, on average, was awarded in stock grants that will pay out only if performance goals are achieved.

But there were differences in CHROs' incentive pay among industries:

• At utilities companies, performance incentives accounted for more than 40 percent of total CHRO pay on average—the largest prevalence of such awards in the study.
  

• Health care and technology companies had the second- and third-highest prevalence of performance awards. At health care companies, incentive pay accounted for 33.9 percent of total compensation; at tech companies, the figure was 33.1 percent of total compensation.
  

Across the study, total shareholder return was the most common performance metric tied to long-term stock awards, followed by earnings per share and return on capital.

"The biggest driver of [profitability] is the effectiveness and efficiency of an organization's human capital," Bergen said, and this requires company leaders to determine how they will measure HR performance within the organization's overall goals.

[SHRM members-only toolkit: Designing and Managing Incentive Compensation Programs]

CHRO Pay Across the Board

Most CHROs don't earn multimillion-dollar pay, however. According to the latest findings by PayScale, a Seattle-based compensation data firm, CHROs in the U.S. overall more typically earn salaries of about $153,000 annually, and roughly half receive incentive bonuses.

(Click on graphic to view in a separate window.)

Source: PayScale data for 175 CHROs at U.S. companies (all sizes) from November 2016 to November 2017. Roughly half of CHROs did not receive a bonus. CHROs receiving the median base pay are not the same as those receiving the median bonus.

"Bonuses are becoming a more common and more important piece of CHROs' compensation plans," said Chris Martin, lead data analyst at PayScale. "In 2014/2015, 46 percent of CHROs reported receiving bonus pay. In 2016/2017, this number has increased to 52 percent."

The relative size of the typical bonus as a share of total compensation has increased as well, "from 18 percent to 20 percent," he noted.

(Click on graphic to view in a separate window.)

Source: PayScale data for 175 CHROs at U.S. companies (all sizes) from November 2016 to November 2017. Roughly half of CHROs did not receive a bonus. CHROs receiving the median base pay are not the same as those receiving the median bonus.

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