Equilar Institute

Spotlight on the CHRO: Assessing the Top Issues

An interview with Ani Huang, President of the Center On Executive Compensation and Senior Vice President of the HR Policy Association

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Ani Huang is President of the Center On Executive Compensation and Senior Vice President of the HR Policy Association. Ms. Huang joined the Center in January 2012 from Global Payments, Inc., where she was Vice President of Global Compensation and Benefits. She has almost two decades of experience in compensation and human resources.

In her current role, Ms. Huang is responsible for overseeing the Center’s practice on a wide variety of executive compensation and governance issues as well as subscriber engagement and Center research and writing.

She is a frequent speaker and writer on the topics of executive compensation and governance. Prior to serving as Vice President of Global Compensation and Benefits at Global Payments, Ms. Huang held various positions at Deutsche Bank A.G. in New York and Tokyo, Japan. She is a graduate of Stanford University.

The role of chief human resources officer (CHRO) has evolved significantly over the last several years. While the CHRO is still responsible for overseeing the HR policies and practices of an organization, the role has expanded to be more strategic, particularly within the boardroom. With human capital management (HCM) issues taking the forefront in 2020, several companies are in need of leadership on these top initiatives.

C-Suite sat down with Ani Huang, President of the Center On Executive Compensation and Senior Vice President of the HR Policy Association, to discuss the top governance and compensation- related issues boards and executive management teams should plan to face in the year ahead. As Ani prepares to assume the role of CEO of the Center On Executive Compensation in March 2020, she sheds light on her vision, as well as thoughts on the pivotal role the CHRO will play in the coming years.

C-Suite: As the theme of this issue of C-Suite focuses on outlook 2020, what would you say will be the key areas of interest for CHROs in 2020?

Ani Huang: As we said in our own Center outlook this year—what a difference a decade makes! Ten years ago we were just beginning to grasp the impact of Dodd-Frank and financial reform as well as increased shareholder engagement through Say on Pay. As we look ahead to 2020 and beyond, companies are facing global volatility, a possible economic downturn, and a potential shift in public policy with regard to several aspects of corporate governance, including executive compensation, which would directly impact CHROs.

That said, I see a few key areas of interest for CHROs in 2020. The push for board and executive diversity will continue to build momentum, especially if there is an administration change. Lawmakers are already considering legislation on both the state and federal levels regarding reporting or mandating board diversity, while investors apply pressure through engagement and shareholder proposals, which will drive much of the change irrespective of public policy. Similarly, pay equity discussions are certain to continue in 2020, with activist investors like Arjuna Capital already beginning fresh campaigns. We have seen a small but compelling minority of companies making voluntary disclosures around pay equity and transparency, which may result in other companies feeling pressure to follow suit. Finally, ESG continues to loom over company disclosure and pay discussions. Although most companies do not (yet) include ESG-related pay metrics in their incentive plans, the mainstream investor community continues to push for increased disclosure of ESG initiatives. Announcements like the Business Roundtable’s statement on corporate purpose and BlackRock CEO Larry Fink’s letter to CEOs regarding the importance of sustainability will only intensify the pressure on companies to do something, even if it’s very unclear what that something is!

Recently, HCM has evolved into a hot- button topic across the governance community. How are companies preparing to address HCM issues in 2020, and what are some strategies to consider in promoting an optimal corporate culture? What role does the CHRO typically play in this process?

Huang: We have seen a considerable increase in board attention to HCM issues over the past few years, and that certainly seems likely to continue in 2020. The CHRO, along with the CEO and leadership team, is often considered the steward of company culture, and the board looks to the CHRO to provide valuable information on the state of the company’s human capital. We are seeing an increase in the use of “culture dashboards” to present culture and human capital metrics to the board in a measurable and easy to understand way. We are also seeing CHROs employ a variety of innovative ways to develop, enrich and change culture such as the use of focus groups, ethics hotlines, “just-in- time” employee sentiment surveys, social media and public sentiment analysis. CHROs are also focused on increasing engagement between management and employees in the field. In terms of disclosure, there has been a tremendous push for increased HCM disclosure over the past few years, including the SEC’s recent proposal to require a principles-based disclosure of material HCM issues. Companies are still in the early stages of determining what types of disclosure make sense for them, so we at the Center have urged the SEC to keep the rules principles-based rather than changing them to include specific metrics, as some stakeholders have demanded.

One of the greatest challenges for HR executives and CHROs is to manage risk. What are the biggest governance or compensation-related risks that CHROs and boards face today, and how can those risks be mitigated?

Huang: I think there is no question that from a governance perspective, one of the biggest risks is an event that causes the company and CEO to lose the trust of employees or the public, such as an ethical lapse, #MeToo incident or other scandal. While strong culture plays a considerable role in mitigating these risks, CHROs are also advising their boards and leadership teams to have good communication strategies in place that enable them to respond very quickly in a “viral” world. Boards are increasingly taking a “zero tolerance” approach to executive misconduct, as reflected in record- breaking levels of CEO turnover in 2018 and 2019. This requires CHROs to have strong succession plans in place, sometimes with multiple potential successors identified, in order to make necessary changes quickly and with a minimum of disruption to the business. Loss of key talent is another people- related risk that CHROs are constantly monitoring and strategizing about in a competitive talent environment.

Aside from the previous, economic volatility is always a risk, and there are a number of tools CHROs can use to mitigate that risk from a compensation perspective, including considering the balance of cash vs. equity in incentive plans and doing scenario testing on performance metrics and target- setting. Finally, I see data privacy concerns as a major risk going forward for companies and CHROs. Right now efforts to restrict or regulate the use of data, AI and automation are all over the map, and the technology is likely to evolve faster than our ability to effectively regulate it. CHROs can help steer the discussion at a management level through collaborating on a set of principles regarding company philosophy on digitization and use of data (HR Policy Association will be releasing a sample set of principles later this year).

How has the role of the CHRO evolved over the last several years? What role does the CHRO play in the boardroom today?

Huang: For the strategic CHRO, who is an integral member of the leadership team and a unique resource for the board, the primary focus now is making sure their people strategy helps execute the goals and strategy of the business, ensuring their company has the best possible talent, deployed in the best possible way, and driving a strong and compelling culture that prioritizes diversity and inclusion. Since these items are critical to the success of the company, the board is typically looking for insights and understanding as to how the company is executing on these goals and what changes are needed. In addition, the CHRO is the board’s most important resource on the topic of executive compensation and governance, trends and risks related to those issues, and planning for succession for the CEO and other members of the C-suite team. Finally, I would argue that an experienced CHRO can play a valuable role as a member of the board. We are increasingly seeing companies interested in attracting directors with skills around talent, organizational development and human capital metrics, and diversity—and finding all of those in CHROs.

Given your experience as Senior Vice President of the HR Policy Association and President of its Center On Executive Compensation, what are your initiatives and goals as you take on the role of Center CEO?

Huang: I joined the Center eight years ago as an HR practitioner and Head of Total Rewards, with no association or Capitol Hill experience. It has certainly been a journey, with a wealth of knowledge acquired through the support of the Center’s former CEOs, Charlie Tharp and Tim Bartl, as well as the entire Center team. The Center now faces an exciting new decade that is likely to bring a fresh wave of legislative and regulatory pressures in the realm of executive compensation and governance. Our goal is to navigate these waters on behalf of our member- ship, develop and promote principled pay practices, and advocate for sensible compensation policies that serve the interests of shareholders and other stakeholders as well. In that context, we are focused on a number of policy items for 2020 such as advocating for much-needed reform of the proxy advisory firm industry, providing a counter perspective and fact-check to the various candidates’ “campaign talk” about executive pay, and working to ensure our perspectives are provided and considered in SEC regulations and in legislative debates. In addition, we aim to continue to expand our research and educational offerings, especially in the areas of ESG, pay equity, income inequality, compensation metric selection and innovative approaches to executive compensation.