And since the alternatives are costly, boards are studying them more closely as well. "Options expensing has caused firms to think about equity programs in a more strategic way," says Cross. Companies now make fewer employees eligible to receive stock. The 2006 data shows that within finance, compared with two years ago, those executives less likely to get stock-based long-term incentive plans include top accounting executives, risk managers, cost-accounting managers, and payroll managers. Going forward, companies are more likely to provide stock-based pay to CFOs, treasurers, divisional controllers, and the top tax, internal-audit, and financial-analysis executives.

Proof, Then Payment
Much of that incentive pay has a closer link to performance than in the past. For example, some CFOs receive options only if their companies' stock price rises faster than that of their peers. Others aren't allowed to cash in restricted stock grants unless they hit certain financial targets. Even qualifying for a bonus — which traditionally involves a performance component — is more challenging.

"This is a common theme among my clients," says Cross, who estimates that more than half of the (mostly manufacturing) firms with which he works are now using pay that is more closely linked to performance. Hurdles are typically market-based. Under the 10-year-old plan that governs Steve Chazen's pay package, for example, the compensation committee reviews Occidental's total shareholder returns for the previous four years and ranks them against a peer group, which includes companies such as ExxonMobil and Kerr-McGee. If Occidental ranks first, executives receive 200 percent of the target amount of options (10,000). Poorer performance means gradually fewer shares. If the company ranks last or second-to-last, executives get nothing.

At other times, companies' internal metrics determine the measures. As part of his compensation plan at transportation concern CSX, Oscar Munoz (#14 on this year's list) will receive performance units only if the rail company meets predetermined cash-flow targets over a two-year period. Insurer Conseco does something similar, tying the vesting of options to the achievement of operating ROE over a three-year period.

Oshkosh Truck now splits CFO Charles Szews's bonus between an earnings-per-share target and return on invested capital as compared with competitors' returns. Before 2002, bonuses were based 25 percent on net sales growth, 60 percent on EPS, and only 15 percent on predetermined (not relative) ROIC.

Should CFOs Get Incentives?
Does it make sense to link CFO pay to such goals? After all, Chazen notwithstanding, most CFOs lack the operational influence of a business-unit head. Internal Revenue Service commissioner Mark Everson is among those who raise governance concerns about CFO compensation that includes stock or other variable incentives. Speaking before the Senate Finance Committee in September, Everson argued that finance chiefs, top corporate attorneys, board chairs, or other executives responsible for "minding the cookie jar" should receive generous, fixed cash payments only. Take away any incentive for mischief, runs his argument, and less fraud will result.

Neither CFOs nor compensation consultants like that idea, of course. Steve Van Putten, who runs the East Coast executive-compensation practice of Watson Wyatt Worldwide, notes that as the CFO's job expands into areas of strategy, variable pay is appropriate. "The CFO helps drive the performance and strategic direction of the company," he says. "And the best way to get the CFO to do that is with long-term incentives linked to shareholder value."

Slimmer paychecks for finance executives, moreover, could mean that the smartest candidates opt for more-lucrative work. "I think you would see a lot of ex-CFOs out there," says Chazen. "Of course," he adds, laughing, "I'd gladly take all of my compensation in cash, including the Black-Scholes value of the options."

For now, at least, incentive pay for CFOs shows no sign of disappearing. In fact, some experts believe we'll see more of it next year when the Securities and Exchange Commission's new compensation-disclosure rules take effect and CFOs will have to be included in the proxy statement's compensation table. Currently, the five highest-compensated managers — a group that doesn't always include the finance chief — must appear.

"Now that CFOs are required to be listed with the top-five list, you'll see many of them getting raises," says Van Putten. That's because CFOs will be able to compare their pay with that of their peers and lobby for an increase. Also, some boards may decide to increase CFO pay to levels similar to that of the other listed executives.

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