Human Capital & Careers

CFOs Have a Pay Party

Median CFO compensation rose by 7% in 2013, boosted by strong corporate performance in metrics used to trigger short-term incentive payouts.
David McCannSeptember 17, 2014

While pay for American workers overall continues to stagnate, as it has throughout the past five years of economic expansion, median CFO compensation shot up in 2013 by 7%, according to a Mercer analysis. That followed a mere 2% gain the prior year (see chart below).

The study focused on the 491 S&P 500 companies that published 2013 executive-compensation data by July 1, 2014. It reported on total direct compensation, including base salary, short-term incentive or bonus payouts, and the expected value of long-term incentives.

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Increased CFO pay, like that for CEOs, was driven partly by strong performance in the metrics companies tend to use as triggers for short-term incentive payouts. For example, median earnings before interest and taxes, or EBIT, advanced 5% last year. “Short-term incentive payouts are strongly driven by earnings,” notes Ted Jarvis, Mercer’s global director of data, research and publications.

As for long-term incentive payouts, they’re mostly driven by total shareholder return, and the stock market’s stellar performance in the past couple of years pushed the median three-year TSR to 16%.

CFOs’ total direct compensation held steady last year at 34% of what CEOs earned. However, the two groups showed greater alignment in terms of pay mix, in the sense that base salary shrunk as a percentage of overall pay. For CFOs, while the base-salary median grew by 3.8%, short-term incentive payouts swelled by 12.4%. “You’ll be seeing that trend become more and more pronounced,” says Stephen Mork, a partner in the consulting firm’s executive rewards practice.

Finance chiefs aren’t going to be closing the pay gap with their bosses anytime soon. Mercer’s analysis showed that the median short-term incentive in 2013 was 160% of base pay for CEOs at S&P 100 companies but only 100% for CFOs. In other words, the finance folks had less upside potential.

Despite the greater strategic roles finance chiefs now play, compared with years ago, they remain understudies, Mork notes. “CEOs, not CFOs, still drive the business and set the strategy, which you can see in how they’re being paid,” he says.

Meanwhile, CFOs’ aggregate median total direct compensation was actually 8% higher than in 2012. Mercer, though, prefers a different approach to quantifying the change, which resulted in the 7% figure. Rather than report aggregate compensation data, it compared the specific pay statistics for each company on a company-by-company basis for 2013 vs. 2012. It then arrayed those companies from smallest pay increase (in some cases it was a decrease) to largest, resulting in a different median point than the aggregate data produces.

“That conveys the typical experience of executive incumbents better than simply comparing the aggregate medians from one year to another,” Jarvis says.