CFO pay growing faster than CEOs'

Mercer examined a sample of 350 listed companies split into three groups: 50 top companies (reporting revenues of $40.1bn to $375.4bn); large ($7.4bn to $42.3bn); and mid-sized companies ($1.2bn to $8.1bn), looking at payments made to CFO and CEOs in 2006 and 2007.

It found that, in 2007, only 15% of the CFOs in its sample did not receive a pay rise, compared with 39% of CEOs who were not awarded a raise. In addition, 19% of CFOs in its sample that did receive a pay rise in 2007 were awarded more than 10% of base salary. Meanwhile, only 13% of CEOs received the same pay rise.

Median total direct compensation (defined as salary plus actual bonus, plus the present value of long-term incentive awards) for CFOs was $4.1m for those among the top 50 companies compared with $2.7m for the 150 large companies and $1.4m for the mid-sized companies. In 2007 actual total direct compensation for CFOs increased year-on-year by 5.4%, but fell by 1.4% for CEOs ­ though those figures were markedly down from 2006 year-on-year numbers, with CFO total compensation rising by 19.7% compared with 13.1% for CEOs.

More striking is the fact that the largest pay increases in 2007 came from performance-based payments, with CFOs making significant gains in this regard over CEO bonuses. CFOs saw their actual short-term incentive payments increase by 11.5% in 2007 and long-term bonuses gained 10.3%; this contrasts with CEOs’ short-term bonuses falling in value by 3.5% and long-term incentives also falling back by 2.2%.

Overall, Mercer found that about 74% of CFO total compensation is tied to incentive compensation rather than salary, with more than half of the average total compensation in any total pay package being long-term rather than short.

The number and frequency of CFOs leaving their job and taking on the same role elsewhere increased in line with the rise in personal responsibilities and remuneration, the research suggests. In 2007, CFO turnover increased to 17% from 11% in 2006, while CEO churn was flat at 9% in 2007 and 8% in 2006. More than half of the CFOs that moved jobs in 2007 were promoted from lower management roles within the finance function such as treasurer or controller, rather than being hired externally.

“We expect CFO pay will continue to increase at a somewhat faster rate than that of the CEO,” says Melissa Burek, a principal in Mercer’s executive compensation business.
Levels of pay for COOs were compared in the research, but had changed little.