Promote Your HR Leader, Reap Profits?

Placing the top human-resources executive within the highest management ranks can help a company reach its financial goals, new research indicates.
David McCannOctober 28, 2013

Could it be that there’s a financial advantage in having the top human-resources executive be an officer of the company? Perhaps so, suggests new research from SuccessFactors, the SAP-owned provider of HR software.

SuccessFactors analyzed the 2012 annual reports of all Fortune 500 companies, which were divided into 50 industries. The minority of companies that did not list an HR executive as an officer of the company had an average 21 percent lower net profit margin than did their industry-peer companies. (There was a minimum of three peers in each of the 50 industries.)

The 7 Habits of Highly Effective CFOs

The 7 Habits of Highly Effective CFOs

Download our whitepaper to discover the technical and behavioral skills needed to lead your business forward.

“We think what that says, based on this analysis and some other studies we’ve done, is that a chief human resources officer can drive an agenda within the executive board about aligning people to goals, and they can insure that performance appraisals are done,” says Karie Willyerd, vice president of learning and social adoption for SuccessFactors.

Both of those influences are key business-results drivers, according to Willyerd.

board roomShe notes that SuccessFactors has access to a wealth of data about companies that use its software, compared with the wider populace of Fortune 500 companies. For example, during the performance-appraisal process employees can link their goals for the next review period to their bosses’ goals. SuccessFactors found that the top 20 percent of its clients, in terms of the percentage of employee goals that were aligned with manager goals, met quarterly earnings estimates approximately 75 percent of the time. The bottom 20 percent of the clients met quarterly earnings estimates only 25 percent of the time.

Further, the goal-oriented companies had 97 percent higher earnings-per-share growth and 320 percent greater stock-price-to-earnings ratios.

“It really doesn’t take a lot of alignment — only about 50 percent — to get into that top-20-percent tier,” says Willyerd. “But the results seem self-evident. If you can get people in your organization aligned with the goals you’re going after, you’re more likely to meet those goals.”

Looking again at the full Fortune 500, SuccessFactors found that companies that included HR-related risks in their annual reports had an average 56 percent higher compound annual revenue-growth rate than did their industry peers.

At such companies, the analysis suggests, “there’s enough sophisticated understanding about the implications of talent to put it in an annual report,” Willyerd opines. “It says, for example, that they’re aware of succession-planning risk and have a plan in place for when they lose talent. If you’re even thinking of it as a risk, it indicates a level of sophistication about people management.”

Image: Creative Commons 2.0, flickr user bsabarnowl