HR a Strong Resource when Determining Exec Compensation

May 9, 2006 ( - In organizations that utilize compensation committees to determine executive pay, Human Resources (HR) plays a key role, according to a report from the Society for Human Resource Management (SHRM).

According to an SHRM press release, almost 80% of HR professionals surveyed said HR provides the committees with information on their company’s overall compensation structure, and 67% said HR provided analysis on industry best practices.Forty-four percent said HR designed the compensation plan and drove the pay philosophy, according to SHRM.

Compensation committee involvement by an organization’s chief HR officer, senior vice president of HR or other top HR professional is heaviest in publicly owned for-profit organizations (13%), followed by the government sector (9%), privately owned for-profit organizations (7%) and nonprofit organizations (6%).

One reason for the increasing role of HR in executive compensation it is more tied to performance after recent corporate governance measures. “As performance measures become more tied to compensation for executives, HR’s role will continue to be significant and HR will be called upon to integrate the different layers of executive-level compensation – legal compliance, consistency in pay philosophy, benefits and perks, and the design of performance indicators and objectives relevant to the overall success of the organization,” wrote Evren Esen, lead author of the report, according to the news release.

According to the report, top areas determining the compensation package are gross/net revenue (59%), profit growth (54%), cost containment (40%), and customer satisfaction levels (35%). Only 6% of organizations tied a commitment to workplace diversity to executive bonuses.

SHRM’s study also found that the compensation package often depends on the type of organization.Performance-based cash bonuses are given at publicly owned for-profits, according to 99% of the respondents; at privately owned for-profits according to 90% of respondents; and at nonprofits according to 51%. Only 32% said the bonuses are given in the government sector.

Stock optionsare used slightly less frequently, SHRM found, with a little more than one-fourth of respondents indicating that their organizations used them. Overall, though, companies increased their use of restricted stock options. Use of restricted stock tended to stay at the same level the past two years at privately owned for-profits (54%), compared with publicly held for-profits (31%).

In its news release, SHRM said that other perksoften associated with top jobs that were among the most popular are:

  • cellular phones (84%);
  • relocation expenses (71%);
  • supplemental life insurance (68%);
  • handheld devices such as the BlackBerry (67%); and
  • company cars or car allowances in the form of cash payments and job-related liability insurance (each 59%).

SHRM surveyed 340 HR professionals for its report. The survey report is here .