Nobody Owns This: The HR Line That Grew for Eight Years Without a Return

Scheduling meetings isn't why you get out of bed. Filing expenses isn't your calling. So hand it all to Catch — the AI admin that takes the tedious work off your plate and gets it done.

Just ask. Catch handles the back-and-forth on scheduling, flights, restaurants, follow-ups, vendors, clients and more — then comes back with it sorted, in moments.

No guesswork. No dropped balls. What's yours stays yours, private by default and reliable by design.

Nobody became a leader to book their own flights. Meet your admin savior and go from swamped to sorted.

Get started free at catchagent.ai — and start spending your time on the things only you can do.

Get Started Now

Every portfolio company underwrites revenue, margin, and working capital against a target. Almost none underwrite the cost line that has grown fastest over the last eight years. HR expense as a share of operating expense doubled from 1.2% in 2017 to 1.4% in 2022 to 2.4% in 2025 — two compounding step-changes, not steady drift. Staffing followed the identical curve.

Over that same window, global employee engagement, the outcome the function most directly owns, fell from 23% to 20%, the lowest reading in five years. The industry has not yet had to reckon with what that combination is costing it, because no one inside a typical portfolio company was ever assigned to look.

The prevailing assumption is reasonable on its face. HR is a compliance and risk function, not a value-creation lever, so its cost should track headcount and regulatory complexity rather than a return target — growth in spend is the cost of running a larger, more regulated workforce, not a signal to investigate.

That assumption held for a defensible reason: for most of the last decade, HR technology was pitched, funded, and adopted specifically to hold this line flat. Enterprise HRIS platforms were underwritten as headcount-avoidance investments, and boards reasonably expected the spend to follow suit.

It didn't. Mercer's own operations benchmarking shows that after a full decade of platform investment, HR's time spent on strategic work moved from only 10% to 13%, while transactional, recordkeeping work fell just 5 to 7%.

The mechanism boards were told would prevent this growth ran its full course, and the growth continued anyway — unexamined, because nothing about the original assumption required anyone to check. A function cannot be simultaneously under-invested and expanding its claim on every income statement it touches; something absorbed both the new technology spend and the new headcount without releasing capacity anywhere.

The economic translation is not abstract. McKinsey's G&A research quantifies the adjacent opportunity precisely: a 4-to-8-point spend gap between comparable competitors, tied to the mix of value-added versus transactional work, worth roughly 3 points of EBITDA — north of 25% of enterprise value at exit.

Run as a hypothetical, not a claim about any specific company: a $400 million platform carrying a 6-point gap against best-in-class peers is $24 million of avoidable spend; closing half of it is roughly $12 million of EBITDA; at an 8x exit multiple, that's $96 million of enterprise value sitting inside a line most boards have never asked a second question about.

And because that EBITDA recovery is cash before it is anything else, it is also distributable — free cash flow a portfolio company could generate without a growth initiative, a sale event, or a new capital commitment, simply by governing a line it already owns.

That gap cannot be closed by a company that cannot see its own composition, and it sits inside a broader cash problem already visible at the fund level: distributions have held at 14% of NAV for a fourth consecutive year, the weakest stretch since 2008–09. An unmeasured, structurally growing cost line is one of the few reasons cash is not converting as underwritten that remains fully within a portfolio company's control.

An experienced Operating Partner walking into a portfolio review does not ask whether HR spend is too high or too low — that question has no answer without a denominator.

The question is narrower and harder: can this company state, in dollars, what its HR spend produced this year? What the board reviews is a budget variance against last year's number. What management manages is headcount requisitions against approved plan. What buyers underwrite is a labor-cost ratio benchmarked against sector comps.

None of these measure the link between dollars committed and outcomes delivered — the piece missing from nearly every reporting package an Operating Partner will see this quarter.

A sophisticated buyer underwrites management quality and G&A composition explicitly, because both are proxies for how disciplined the business will be to run after close. A seller typically presents HR as a stable, unremarkable line item, rarely disaggregated into value-added and transactional components, rarely tied to a retention or productivity outcome a buyer could verify.

Buyers do not need to prove the spend was wasted to discount for it. They only need to show it cannot be verified — confidence erodes the moment a data room can't produce a line from a dollar spent to an outcome kept.

The gap survives because no single function holds all four conditions required to close it — information, authority, incentive, and accountability. The CFO has authority over the budget and visibility into the spend, but no incentive tied to HR effectiveness and no accountability for its outcomes. The CHRO has the operational information and partial authority over programs, but is compensated for staffing continuity and compliance, not a business-outcome metric.

The deal team has authority to set diligence scope pre-close but treats human-capital assessment informally, with neither incentive nor accountability structure attached. The Operating Partner has the standing to demand the connective measurement across all three, but is typically pulled toward procurement and working capital, where the data is already clean. Four functions, each holding a piece of the answer.

None holding enough of it to be required to produce one. A cost line with distributed partial ownership behaves exactly like a cost line with no ownership at all.

This is where the two tests separate. Mercer's staffing-ratio data shows HR at roughly one professional per ninety employees, against one per thirty in Finance and IT combined — by headcount, the function is lean, not bloated.

A board that stops at that number concludes the assumption was right all along. But headcount adequacy and outcome accountability are not the same question, and this paper's finding is that only one of them has ever been asked. A function can pass the staffing test and fail the governance test simultaneously — and nothing about passing the first test tells a board anything about the second.

A single scorecard, run against any unmeasured cost line, testing whether each function that touches it holds the four conditions required for accountability to exist:

Read horizontally: no row is complete. Read vertically: Information and Authority are distributed across the organization; Incentive and Accountability are nearly absent everywhere. That asymmetry — capability to act exists, motivation to act does not — is the diagnostic signature of an "opportunity without an owner." Applied to any G&A line, a mostly-empty Incentive and Accountability column is the signal that a cost pool has been growing on assumption rather than governance.

Sponsors should stop reviewing HR as a line item on a budget variance report and start requiring it be presented the way margin and working capital already are — with a stated return, however imperfectly measured, attached to the spend.

Operating Partners should extend the diagnostic rigor already applied to procurement and working capital to the G&A composition question, and should not treat a passed staffing-ratio benchmark as a substitute for that diagnostic. CEOs should treat human-capital measurement as a governance requirement of the role, not a CHRO deliverable filed separately from the operating review. CFOs should require that any HR budget increase carry an attached outcome hypothesis, tested the following year — the same discipline applied to a capital expenditure request, and one that converts a defensive cost into a source of governed free cash flow.

Boards and investment committees should add one standing question to every portfolio review: which of our largest unmeasured cost lines would a buyer discount for, and are we closing that gap before they find it.

HR is the only line item large enough to move EBITDA that most boards still review without asking what it bought.

The Ownership Gap Diagnostic table belongs directly in the next board packet, run against the portfolio company's HR spend specifically. The question that should appear in the next operating review: "What did last year's HR spend increase produce, in a metric we can verify?"

The assumption that should be re-underwritten: that a function passing its staffing-ratio benchmark has therefore been adequately governed. This paper should influence the diligence checklist for the next acquisition — specifically, whether human-capital assessment receives a structured diagnostic or remains, in practitioners' own words, "a gut check."

This paper adds a reusable governance instrument — the Ownership Gap Diagnostic — to the operating system's library, extending "opportunities without owners go untouched" from a belief into a testable four-condition framework applicable beyond HR to any unmeasured cost line.

It also sharpens the underlying finding from a cost observation into a governance failure with a named structure, and adds the distinction — now proven across the paper, the video script, and the published report — between staffing adequacy and outcome accountability as two separate, non-substitutable tests. That distinction is what makes the finding durable rather than a one-time critique of HR headcount.