CHRO Compensation and Strategic Human Capital Management

Abstract

Human capital is increasingly a key determinant of productivity, yet little is known about how firms manage it. Using proprietary survey data on Chief Human Resources Officer (CHRO) compensation for a broad sample of U.S. public firms, we examine whether the compensation of the CHRO relative to that of the CEO is informative about the organizational importance firms assign to human capital management (HCM). We show that higher CHRO pay ratios are associated with more active workforce reshaping, stronger workforce-quality measures, and higher employee sentiment. Firms with higher CHRO pay ratios also exhibit greater accumulation of intellectual capital, which subsequently predicts abnormal stock returns. Collectively, our findings suggest that how firms compensate the CHRO is informative about their HCM.

Edward M. Watts

Associate Professor of Accounting

Edward Watts is an Associate Professor of Accounting at the Yale School of Management.