CFOs’ earnings grew more than CEO pay did in 2012, the third year in a row finance chiefs earned such bragging rights, according to an analysis by Compensation Advisory Partners.
The firm looked at total direct compensation for those positions and its components – salary, annual bonus and grant-date value of long-term incentive awards – for 62 companies with at least $1 billion in revenue that filed their 2013 proxy statements by March 31. Excluded from the research were financial firms (for which compensation models remain in flux) and companies that changed CFOs or CEOs between 2010 and 2012 (to ensure a focus on year-over-year changes for individual incumbents).
The results showed pay trends scaling down dramatically for both positions. Total direct compensation for CFOs in the sample grew by just 1.4 percent last year, compared to 7.5 percent in 2011 and 20 percent in 2010. CEO pay, which had climbed by 3.6 percent last year, actually declined by 0.3 percent in 2012.
CFOs fared all right in salary, which rose 3 percent, just a half-point less than the prior year and six times the growth CEOs saw. But the value of long-term incentives fell off a cliff for both groups. That value, which had grown about 10 percent for both roles in 2011, grew only 2 percent last year for CFOs and not at all (0 percent) for their bosses. While the companies’ median total shareholder return ballooned by 14% in 2012, most of that growth came after the typically early-year grant dates of long-term stock awards, which are measured in the following year’s proxy statement.
Yet the biggest factor holding down overall pay was annual bonuses, which were down by 1.2 percent for finance leaders and 2.8 percent for CEOs from 2011 levels. “Companies are getting better at tying bonuses to company financial performance,” says Kelly Malafis, a partner with the compensation-advisory firm. Such payouts are often tied to one-year growth in revenue or net income, and the median 2012 gains in those metrics for the 62 companies were just 3 percent and 2 percent, respectively. That compared to corresponding growth of 9 percent and 13 percent in 2011.
“This dramatic slowdown [in compensation] suggests that the halting economic recovery is having an impact,” Compensation Advisory Partners wrote in its report.
CFOs continue to outscore CEOs in pay trends – percentage-wise, that is – because of the stronger investor scrutiny of the latter group’s earnings in recent years. “At companies where there are performance issues or other governance issues, the person whose compensation is most likely to be impacted is the CEO, who is by far the most highly analyzed by institutional investors and proxy advisory firms,” notes Malafis. Still, in raw numbers CEO pay remains about three times greater than that of finance chiefs, she adds.