Things Are Looking Up

Even before 2008 gave us a September to Remember on Wall Street, CFOs were enjoying a notable rise in compensation, with the increases to their pay packages outpacing those of other C-level executives. From the passage of Sarbanes-Oxley through the subprime meltdown and into what feels like a perpetually looming recession, CFOs have had to shoulder tremendous responsibility for maintaining the integrity of corporate financials even as they look for ways to improve them.

"In the big issues, CFOs are front and center," says Melissa Burek, a principal at Mercer, which provided most of the data for this report. And few experts see CFOs stepping out of the limelight any time soon, which should bode well for future pay prospects. "More visibility," says Alexander Cwirko-Godycki, research manager for executive-compensation research firm Equilar Inc., "leads to a ratcheting up of pay."

While CFOs still lag chief executive officers and chief operating officers in terms of average compensation, they are gaining. Median total direct compensation — comprising base pay and short- and long-term incentives — moved up 5.4 percent for CFOs, to $2.3 million, while CEOs slipped back by 1.4 percent, to $7.3 million, and COOs dropped by 1.7 percent, to $3 million. CFOs achieved the steepest rise in actual short-term incentives, with an average gain of 11.5 percent (to $558,000) versus a decline of 3.5 percent for CEOs (to $1.5 million). COOs held steady at $725,000. Base salaries rose 3.1 percent for CFOs, to $516,000, while CEO base pay remained flat and COOs saw only an incremental gain of 0.6 percent, to $635,000.

At the Top, Big Pay but Huge Turnover
Company size is, of course, a major determinant in overall compensation. At the 50 largest companies in the United States, CFOs pocketed a median $4.5 million in total direct compensation. At "Large 150" companies (defined by Mercer as having revenue of $8 billion to $42 billion), CFOs earned a median of $2.7 million, while CFOs in the "Midsize 150" ($1 billion to $8 billion) earned $1.4 million. Short-term incentives were similar across all three groups, but long-term incentives varied widely.

The median base salary for CFOs at Top 50 companies was $614,000, while at Large 150 companies it was $576,000 and at the Midsize 150 it was only $433,000. Median short-term incentives also came in vente, grande, and tall to match revenues: $998,000, $734,000, and $332,000, respectively.

CFOs at the peak of the pay pyramid hauled in princely sums. David A. Viniar of Goldman Sachs, who in early 2007 directed Goldman traders to trim mortgage exposure, snared first place with a whopping $42.2 million in total compensation, according to Salary.com's CompAnalyst Executive, which identified the top 20 earners. Safra Catz at Oracle and Gary Crittenden at Citigroup each earned more than $30 million, while 15 more counterparts each earned more than $10 million. "These CFOs are all leaders in their respective industries. Does their 2007 compensation surprise me? No," says Josh Lurie, vice president, executive compensation, at Salary.com. Pivotal roles in volatile capital markets could propel CFO compensation still higher. "In certain industries," Lurie predicts, "I can see CFO pay starting to creep up toward the CEO's."

Proving that finance departments have been marked by sweeping changes over the past two years, only 2 of the 20 highest-paid executives in 2006 remained on the list in 2007: Goldman's Viniar, formerly No. 2, and Stephen Chazen of Occidental Petroleum, who slipped from No. 1 in 2006 to No. 8,with $13.8 million in total 2007 compensation. Bank of New York Mellon Corp. CFO Bruce Van Saun, last seen in the 2004 survey, reappears in 7^th place this year, with $15.8 million. Citigroup and Aetna, both on the 2006 roster, returned in the 3^rd and 16^th places, respectively, but with new CFOs: Gary Crittenden ($31.9 million) and Joseph M. Zubretsky ($10.6 million).

In a year when one woman was handed the Republican nomination for Vice President and another narrowly missed becoming the Democratic Presidential candidate, the 20 best-paid CFOs included only one woman. Kathleen Quirk at Freeport-McMoran earned $16.1 million, according to Salary.com, landing her at No. 6. The 2006 list also featured only one woman, but four graced the list in 2004 (from JPMorgan Chase, International Game Technology, Merck, and PepsiCo). The results seem certain to change next year, however, given that Alltel CFO Sharilyn Gasaway was recently identified by Fortune magazine as the highest-paid female executive in the United States.

In many ways, the realm of CFO compensation has been, and may continue to be, as volatile as Wall Street lately, if not more so. Not only do individual CFOs come and go from the Top 20, but so do their companies. Some disappear overnight, like Bear Stearns, while others file for bankruptcy (Lehman Brothers), are acquired (Merrill Lynch), or see results plunge (Toll Brothers, Lennar Homes). The impact of new disclosure rules, which cast even more limelight on CFO compensation, may have an effect.

Call it coincidence or cause and effect, higher CFO turnover accompanied rising pay levels. Mercer reports that CFO departures, which ran at an 11 percent clip among the 350 companies in the survey in 2006, increased to 17 percent last year. That means more than a quarter of companies saw a new CFO enter the scene in 2006–07, sometimes more than once.

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