Who Decides the Pay Package of the Head of HR?

The highly influential role of the Head of Human Resources (Head of HR) in an organization often warrants careful consideration and negotiation over their pay package. Understanding who decides this salary and how the process works is crucial for any HR professional or business leader. In this article, we will explore the key stakeholders involved in deciding the Head of HR’s pay package and the process they follow.

Role of the Financial Department

Typically, the Chief Financial Officer (CFO) or the Finance department manages the budget for various functions within an organization. The CFO's team evaluates and allocates budgets to different functional areas based on strategic priorities and company needs. This budget allocation forms the foundation upon which the compensation for the Head of HR is considered.

Approval Process

The salary for the Head of HR is decided within the approved budget by the Chief Executive Officer (CEO). However, the final decision requires the CEO to seek approval from the Board of Directors (BoD).

The Chain of Command

The Budget Allocation is initiated by the CFO, who outlines the financial plan for the organization based on strategic goals and resource allocation.

The CEO reviews the budget proposal and can propose adjustments based on individual functional needs and the strategic importance of the role of the Head of HR.

The CEO then presents the revised budget, including the proposed salary for the Head of HR, to the Board of Directors for final approval. The BoD may discuss the matter in detail, considering the company’s financial health and the uniqueness of the position.

Once the Board approves the budget, the CEO finalizes the Head of HR’s salary within the allocated amount.

Other Factors Influencing the Pay Package

While the above process outlines the typical route for determining the pay package, there are several other factors that may influence the final decision:

1. Market Conditions

Market conditions play a significant role in determining the pay package. Industry trends, salary benchmarks, and changes in the labor market all contribute to the potential salary range for the Head of HR. Regular market assessments and competitor analyses ensure that the Head of HR is competitively compensated.

2. Company Performance

The financial performance and business metrics of the organization can impact the Head of HR’s pay package. Strong organizational performance, rapid growth, and positive return on investment can justify a higher salary, while underperformance may lead to lower compensation.

3. Position Requirements and Impact

The specific role requirements, responsibilities, and strategic importance of the HR function can greatly influence the compensation. Roles requiring extensive expertise, such as HRM, recruitment, and employee relations, may command higher salaries due to their critical nature to the organization’s success.

Conclusion

The process of determining the pay package for the Head of HR is a collaborative effort, involving various stakeholders including the CFO, CEO, and the Board of Directors. Market conditions, company performance, and the unique requirements of the role all play a role in shaping the final compensation.

To stay on top of these dynamics, HR professionals should engage in regular market assessments, maintain open communication with the finance and leadership teams, and advocate for fair and competitive compensation based on the organization's goals and market conditions.