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Bridging the CHRO/CFO Divide: Align Compensation and Benefits with Corporate Strategy

Part 5 of our series on how and why Finance and HR should collaborate more closely

Bridge Stretching Out Into Fog or MistCEB’s survey of more than 100 midsized company executives clearly showed that executives in finance and HR – including CFOs and chief human resources officers (CHROs) – want to work more closely and take advantage of opportunities to help teach and learn from each other.

The same survey highlighted five areas where CFOs and CHROs agree on how they should work together, and four areas that CHROs and CFOs view differently and believe the other should strengthen their expertise.

The previous post looked at how CFOs and CHROs must work together to help their line partners in all areas of the enterprise use the right metrics. Fourth on the checklist is the need for Finance and HR to help design compensation and benefits packages that encourage the right behavior; namely, a desire for all employees to work together to achieve corporate strategic goals.

Designing the Right Compensation Package: CEB’s View

Compensation and benefits decisions should only be made once strategy has been set and the firm understands what capabilities it needs to implement that strategy.

From this, senior managers can decide what goals they should set themselves and the rest of the firm. And, to do this, they must understand which behaviors will determine short- and long-term success and then align compensation with MBOs, clearly connecting outcomes to pay and short-term incentive payouts.

The most progressive firms take this a step further by asking leaders to identify the most important points at which they must collaborate (much like the “collaboration points” outlined in this series of posts) and then tie these outcomes to incentives as well.

CHROs and CFOs should work closely together to ensure compensation and benefits encourage the right outcomes and behaviors. At leading companies, HR provides regular reporting on HR metrics and Finance analyzes the effectiveness of these metrics, the results of which encourage further collaboration between the two functions.

While senior executives should not neglect traditional compensation and benefits, CEB research shows that public recognition of employees’ success has double the impact on performance as that of rewards.

This may be because only 28% of leaders believe they have a strong line of sight between their actions and rewards (see chart 1).

Unfortunately, traditional compensation policies fail to produce real strategic value in most companies and actually incentivize counterproductive decision making that can degrade shareholder value.

Leaders Line of Sight

Chart 1: Leaders who agree they have strong “line of sight” from their actions to their rewards  Percentage of leaders; n=294  Source: CEB 2012 High Performance Survey

It is imperative, therefore, that CFOs and CHROs work hard to make compensation and benefits encourage behavior that will ensure the firm hits its strategic goals. 

Executives’ View

When compensation misaligns with strategic objectives, it often drives the wrong behaviors, such as rewarding salespeople for bringing in revenue even if the customer is a poor strategic fit and/or costs too much to service.

CFO, Consumer Products Manufacturing Industry 

Up Next

Why CFOs and CHROs should implement an ongoing review process to ensure coordination on critical talent management decisions.

 

Read part 1 of the series, Bridging the CHRO/CFO Divide: 5 Steps to A More Powerful Partnership

Read part 2 of the series, Bridging the CHRO/CFO Divide: Engage in Strategic Planning Early

Read part 3 of the series, Bridging the CHRO/CFO Divide: Integrate Operational and Workforce Planning

Read part 4 of the series, Bridging the CHRO/CFO Divide: Help the Business Use the Right Metrics

Read part 6 of the series, Bridging the CHRO/CFO Divide: Coordinate Your Approach to the Line

Read part 7 of the series, Bridging the CHRO/CFO Divide: Four Areas Where CFOs and CHROs Disagree

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