CHRO Compensation and Strategic Human Capital Management

Human capital is increasingly the key determinant of productivity; yet, we have a limited understanding of how it is managed within firms. Using proprietary survey data on Chief Human Resources Officer (CHRO) compensation for a broad sample of U.S. public firms, we construct a firm-level measure-the CHRO-to-CEO pay ratio-to proxy for the priority firms assign to human-capital management at the top of the organization. We show that higher CHRO pay ratios are associated with improved human capital management, as evidenced by various measures related to employee turnover, workforce composition, and employee sentiment. These firms also show greater accumulation of knowledge capital, which subsequently predicts abnormal stock returns. Although CHRO compensation is typically not disclosed, we show that it is a useful summary statistic for the degree of strategic human capital management at firms.