Assuming that the top table were talking about here is the one in the boardroom, then it certainly isnt true. According to data from Hemscott, a total of 17 FTSE 350 companies have HR directors on their main boards; this works out at less than 5%. Of these, nine are in the FTSE 100, which is a slightly more respectable figure but still less than one in 10. Moreover, even this meagre number must be taken with a pinch of salt. Four of the 17 have dual roles for example, human resources and corporate affairs director, personnel and services director and so on.
Still, its not all doom and gloom. Those that are not on the main board will probably find themselves at least on a subsidiary operating board. And those few HR directors that are, can expect a fair whack. At the companies that do have HRDs on the main board, the average CEO makes just over 620,000 including bonus and pension and the average finance director (normally seen as number two) gets 450,000. Perhaps surprisingly the HRD is pretty close behind with a package worth 390,000. In only a few cases was the HRD the lowest-paid director and in most of these it wasnt by much.
Whats more, of the seven FTSE 100 businesses that have both board-level HRDs and FDs, four of the former actually earn more than their finance counterparts. Clearly when Britains biggest companies give HR a seat at the top table, they value it as much as any other function.
These figures do mask a huge variance: at one end of the scale we have an HRD who took home a whisker under a million pounds in the last reporting period and, at the other end of the scale, one whose package came in at under 50,000. Still, 11 out of the lucky 17 are on over a quarter of a million and five of those are on over half a million.
Look at the structure of packages and there are often explanations for these discrepancies. Bonuses can play a huge part in skewing salary differentials. If you take the top 25 companies in the FTSE 100, bonuses account for about 90% of salary; for the remainder they are far, far less. Down in the FTSE mid250, at Pizza Express, the CEO gets 199,000 and the HRD 94,000, both decent sums but hardly
princely. The reason for this is that the companys pay structure is geared towards bonuses. In the past these had worked out very well but with profits down 15% and share price down by two-thirds, they just havent been paying. Hence the thin cat salaries.
There are probably more human resources directors on the board than there used to be, says Peter Boreham, a consultant with the Hay Group. If things do or dont work, the critical thing is often the people side of things for instance, in a merger or a takeover. There has, he continues, been a growth in the feeling over the past few years that HR is a key function. Although he cautions that the make-up of the board is to some extent prone to prevailing wisdom and even fashions: Ten years ago everyone was scrambling to get an IT director on their boards. Now, after the dotcom bust it would be interesting to see how many there are. From anecdotal evidence, Id guess rather less.
Andy Christie, a senior consultant at Watson Wyatt, takes a similar line: We are seeing the importance of HR increase, especially in the current environment. By which he means that the popular perception that fat cats roll in clover while regular Joes get stiffed may leave some companies wondering if theyve been paying enough attention to the people side. Our indication is that these factors are placing more emphasis on the function. In the past, when companies were forced to start cutting costs, they tended to go for HR first. That happens less often now.
Both Boreham and Christie agree though that it is unsurprising that, once at board level, HRDs seem to
do reasonably nicely. Boreham identifies three reasons for this: first, any job on the board grows in scope and size; second, it commands a pay premium; and third, if you put HR on the board, it says something about your commitment to the function and pushes up its value. Christie adds that generally on boards except for the CEO pay differentials between executive directors are not normally huge.
Irene Cowden, (board-level) HR director at FTSE mid250 company Securicor, makes an interesting related point. Many of those who have HR directors on board are companies with huge numbers of staff. Certainly this explains why her company, Sainsburys, PizzaExpress, Boots and Pearson all of which either employ huge numbers of staff or, in the case of Pearson, are heavily reliant on talent have an HR director on the board. Boots, though, is perhaps the most interesting of these four its board at the time of the survey had a mere three executive directors: a chairman, a chief executive and an HR director. Extraordinarily, on this board there is no finance director.
Still, adds Cowden, even if the company in question doesnt have an HR director on its main board, they will almost certainly be on the executive committee: Just because a business doesnt have a director on the board, I dont think that means that it doesnt take HR seriously. I was appointed to the main board two years ago but I had a group-wide brief before that across a business with 100,000 employees. All of which brings us to an interesting point and one that could have huge implications for the future of human resources and indeed many other functions in the boardroom.
For although the general sentiment would appear to be that businesses are more likely than before to put HR in the boardroom, one development could put a stop to all this: the Higgs report on corporate governance. One of its key recommendations was that boards are made up of a majority of non-executive directors.
Although the Higgs report has been watered down following its publication earlier this year, Higgs leaves us with the likelihood that, over the next few years, we are going to
see the typical board shrink down to something like four executives, meaning that its going to be impossible to represent everyone at the top table CEO, FD, marketing and AN Other. Thats a space every function is going to be fighting for. However, this could also mean that a lot of executive power devolves down to the executive committee which can only be good news for the majority of HR directors.
