How the CFO-CPO relationship can be improved to retain talent and increase business productivity

How closely should a chief financial officer work (CFO) with a chief people officer (CPO) or the head of human resources? The answer depends on who you ask. Traditionally, this relationship has been something of a one-way street.

Here’s a theoretical, but common scenario in many businesses. An employee is kicking goals or has been offered another position at a rival company that pays more. They go to their manager and lay their cards on the table. Eventually, this works its way up the chain and a CPO might ask the CFO for a budget to give this employee a pay rise.

These ad hoc adjustments are a fairly crude way to manage the biggest cost in any business: talented people. Many businesses, especially in the technology sector, have realised there is a better way for the CFO-CPO relationship to work which greatly improves workforce productivity and efficiency.

How compensation adjustments are affecting employee retention and engagement

Ad hoc remuneration causes a lot of problems, but the two biggest ones are employee retention and cost control.

Inevitably, colleagues find out what other people are earning. If there’s a disparity, it causes resentment. Often, some employees feel the only way to close this gap is to look for a new job themselves.

Right now, talent shortages are holding up projects across the economy. Retention has arguably never been such a priority, and many businesses are losing good people when a simple change to CFO/CPO relationship could have never given them a reason to look around in the first place.

So, here’s another way the CFO and CPO can work together. It allows CFOs to incorporate people-focused compensation plans into their wider financial strategy which can revolutionise the culture of the business.

It involves a rethink of the merit cycle and will give the CFO and CPO the ability to sit down and cleanly look at what everybody’s being paid, how long they’ve been with the business, how they’re performing, and to form a systematic and rational argument for pay rates.

CFOs can incorporate people-focused compensation plans into their wider financial strategy

Conducting regular salary reviews and keeping tabs on industry standards is imperative when it comes to retention.

Having up-to-date salary information easily accessible is key and pays huge dividends, particularly for CFO decision-making.

Merit cycles should be conducted on a regular basis — perhaps once or twice a year. Tracking achievements consistently and transparently will help CFOs and CPOs make objective, unbiased decisions when it comes to compensation planning. A clear view of individual and business-wide performance, benchmarked against peers, will ensure employees understand how they are performing against annual goals and the organisation’s key values.

This allows the CFO and CPO to solve an all-too-common problem. Let’s say, for argument’s sake, there is one developer who has been with the business for three years. During these three years, industry-standard salaries have gone up by around 30% due to the high demand for this skill set. Someone else is hired at the same level to bolster the team, and now there’s a newcomer who straight off the bat has a salary that is 30% higher than what was being paid 12 months ago.

This means you have an incredibly loyal employee being paid less than someone who has just arrived, and this, repeated across a large, complex business can start to create some serious disparities.

For C-level executives, such as the CFO or CPO, there is no such thing as too much data. All too often though, the data the C-suite relies on doesn’t take into account the latest information and insights. This means the business has no choice but to make critical decisions, which will ultimately affect the retention of the best-performing employees, based on incomplete and out-of-date information.

Conducting regular salary reviews, combined with wider industry research will enable a deeper understanding of cost control at a critical juncture in the global economy. It’s a sad reality that many companies, especially VC-backed tech companies, have had to make some hard decisions about the makeup of their workforces.

It’s never been more critical to retain the right talent. And if core talent is being paid at vastly different pay scales, that can be a source of avoidable conflict. In these sorts of market conditions, if you’re not taking the right steps to control your biggest cost class, and perform ad hoc merit cycles, you’re not putting your best foot forward.

CPOs and CFOs must deepen their relationship and work together to remain competitive, and improve workforce productivity and efficiency.