Earlier this year prominent industry thought leader Ram Charan instigated heated debate about the HR function, stating it was “time to say good-bye to the Department of Human Resources”.
His complaint with the current HR function was that chief human resource officers (CHROs) are process-oriented generalists who are not attuned to the business such that they cannot be used as “sounding boards and trusted partners” for the CEO to diagnose weaknesses and strengths in the organisation and advise on the talent implications of the company’s strategy.
In the Harvard Business Review he set out a radical proposal:
“My proposal is to eliminate the position of CHRO and split HR into two strands. One – we might call it HR-A (for administration) – would primarily manage compensation and benefits. It would report to the CFO, who would have to see compensation as a talent magnet, not just a major cost. The other, HR-LO (for leadership and organisation), would focus on improving the people capabilities of the business and would report to the CEO.”
Although this approach may have merit, it’s been our experience that it is unwise to separate out remuneration strategy from organisation strategy and people capabilities.
Although the management and formulation of remuneration policy and principles does require attention to detail, it is not primarily an administrative task. It is an important structural role that touches on every element of the business. Remuneration is a core influence on motivation.
In Pearl Meyer and Partners’ 2014 Compensation Committee Agenda document, it noted that a successful executive pay program will be built around five fundamentals:
- Business Strategy – Examine what really drives value creation in the organisation instead of referring to one-size-fits-all market practice.
- People Strategy – Link talent management to remuneration strategy: consider what results- and behaviour-oriented remuneration strategies can attract and retain talent and encourage employees to gain experience, undertake skills development and groom successors.
- Performance Measurement – Validate that chosen performance measures are still correct given changing market conditions and organisation structure; calibrate performance goals based on shareholder expectations; and, after the performance period is over, analyse whether measures are actually adding value to the organisation.
- Good Governance – Allow external viewpoints and market practices to inform, but not drive, pay program design, using management input where appropriate. Acknowledge that discretion may be necessary in some cases. Be transparent.
- Clear Communication – Prepare talking points and identify who is qualified or needs to be trained to discuss executive pay issues. Be active as well as reactive. Clarify expectations regarding tone, style and perspectives for shareholder documentation. Expend the same amount of time on communicating pay strategies as is spent designing pay policies.
Considering these fundamentals, it is clear it would be difficult to design, implement and manage effective pay programs without HR personnel who understand the business, its people and what motivates them.
Instead of splitting remuneration management from the rest of HR, we would see merit in an enhanced focus on strategy informed by a highly skilled analytics team using productivity enhancing tools. These tools would remove much of the administrative burden, enabling professionals to better focus on strategy.
Although our focus has traditionally been in strategy and policy, for decades we have been working in the online analytics area to inform our consulting business. We have recently translated our expertise into a suite of online products that assist HR with job analysis, job evaluation, internal relativity and organisation analysis.
It will be such tools that free HR from the tyranny of mind-numbing transactions and provide data that leads to better, more informed, decisions.