Chief people officer: The new power player in the c-suite

4 minute read
Human capital has become critical to business and chief people officers are rising up the boardroom ranks, finds new research. But just as c-suite executives begin to acknowledge HR's value more, the profession reaches a pivotal moment, with only four in 10 HR leaders say they want to lead their function in the CHRO role
Sian Harrington

 

Graphic image of a boardroom table with diverse people around it and a female chief people officer standing in front in a power pose


In 1992 just 0.5% of top firms in the United States included an HR executive in their top five paid executives. By 2022 this figure had risen to 13%. 

 

An analysis of nearly 50,000 statements from S&P1500 firms (the index tracking performance of the largest companies listed on stock exchanges in the US) finds that  HR executives are closing the pay gap with their c-suite counterparts, with their salaries now closer than ever to those of other top executives (The rise of human resources by Mert Akan and Nicholas Bloom). 

 

Graph of the share of firms with a top 5 paid executive is rising fast

 

Chief human resources officer (CHRO) and chief people officer (CPO) pay relative to other non-CEO directors has increased from 40% in 1992 to 79% in 2022, closing the gap by a third. This trend is evidenced across every component of pay including bonus, stock options and incentive plans. 

 

The CHRO and CPO titles are driving this trend at the expense of the less senior-sounding HR director and people director titles. Companies with 5,000 plus employees are most likely to have a top five paid HR executive. However, HR has risen across all sizes of organisations as well as all sectors, though business and professional services, leisure, retail and manufacturing are most likely to have top five paid CHROs or CPOs.

 

Line graph showing CHRO and CPO titles are driving rise in HR in the boardroom

 

The figures prompted one of the researchers, Nicholas Bloom, William Eberle professor of economics at Stanford University, to predict that within 20 years the top three executive positions will be chief executive officer, chief financial officer and chief people officer. 

 

However research by The Talent Strategy Group highlights the important relationship between CEO and CHRO roles. A change in CEO increases the probability of CHRO turnover by 224%. Meanwhile, within 12 months of a CEO transition, 33% of new CEOs change CHRO. And within two years of transition this probability jumps to a 54% replacement rate. 

 

Several pivotal events have catalysed the elevation of HR's status within the business hierarchy. The ‘Me-too’ movement, for example, spotlighted the critical importance of creating safe and inclusive workplace environments, thrusting HR into the spotlight to lead these initiatives. Similarly, the COVID-19 pandemic and the subsequent rise of remote work presented new challenges in employee management, wellbeing and productivity, further emphasising the need for strong HR leadership.

 

While the rise in boardroom recognition of the value of HR is to be welcomed, separate research by The Talent Strategy Group indicates a potential leadership gap in HR’s future. The talent management company’s 2024 Global Human Resources Census finds that just 3% of HR leaders want to move into c-suite roles and only four in 10 want to become a CHRO.  

 

Even among CHROs, only 14% say that becoming CEO is their desired destination. India was the most ambitious country with 18% of respondents indicating CEO as their ultimate career objective, while North American HR leaders least wanted the role, with only 3% marking CEO as their preferred destination.

 

According to The Talent Strategy Group this may be because CHROs work more hours, being far more likely than other HR leaders to work more than 50 hours in a typical week, and they have lower work-life balance. CHROs also report far higher levels of working frequently in the office, with 91% indicating three or more days in the office compared to 48% of others.

 

Worryingly the research highlights concerning capability and attitude gaps. Respondents were asked to select reasons why they are in the HR profession based on three ‘humanistic’ reasons, including wanting to help people grow and develop and helping to balance the needs of an organisation and its employees, and three ‘capitalistic’ reasons, including the desire to help their company maximise its profitability and enjoying being part of a for-profit organisation. 

 

Reasons HR leaders choose to work in HR bar charts
2024 Global Human Resources Census: The Talent Strategy Group 

 

A large majority of HR leaders selected the humanistic items as their primary reasons, though CHROs were much more likely to help the company to be financially successful. HR leaders believe their managers would describe them as having a strong and well-reasoned point of view about HR and as being able to build strong relationships with their HR peers. However, they believe their managers would say their weakest areas are “knows our business deeply and thoroughly” and “influences better than most people.” 

 

This data suggests that perceptions of HR as not being keenly interested in the business are often correct, say the report’s authors. “We suggest that the ideal balance is a strong humanistic and capitalistic interest and these results suggest there is still meaningful progress needed to instill a business-first mind set in HR,” they say. 

 

Top reasons people choose to be in HR - CHRO versus other HR leaders
2024 Global Human Resources Census: The Talent Strategy Group

 

There are also capability gaps when it comes to designing or implementing practices in more future-focused areas. While HR leaders have strong experience in talent acquisition, talent management and business partnering they are far less experienced in diversity and inclusion, analytics and workforce planning. This raises serious questions about the function’s ability to add strategic value as work changes. 

Strengths and weaknesses in competencies of HR leaders
2024 Global Human Resources Census: The Talent Strategy Group

While there is much to celebrate in Bloom and Akan’s analysis of HR’s rise into the top five c-suite roles it is clear that HR professionals need to continue to evolve into strategic roles, to bridge leadership gaps and foster a business-first mindset if they are to effectively contribute to organisational goals and success.

 

Published 13 March 2024
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