Human Capital

CFOs’ Lower Bonuses Cut Into Compensation Growth

Growth in CFOs' total compensation was off nearly three percentage points last year.
Vincent RyanJune 15, 2020

Growth in chief financial officer’s total pay slowed for the second consecutive year in 2019, according to new data from Compensation Advisory Partners (CAP). The consulting firm said the slower growth was mostly due to decreases in bonus payouts, which were in turn driven by a slowdown in companies’ financial performances

A little more than two-thirds of the 110 public companies (median revenue, $13 billion) in CAP’s sample increased CFO salaries in 2019, with the median increase of 4%. That was slightly below 2018’s median increase of 4.8%. Including all companies, the 2019 increase was 3%.

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Bonuses for CFOs from all companies fell 3.2% from 2018. Revenue and income growth in 2018 for the sampled companies were both above 9%, but for 2019 revenue rose only 3% and operating income only 5%. However, bonus payouts on average were still above target. Median target bonus opportunities remained unchanged, which for CFOs has been 100% of salary for the last 6 years.

Variable pay opportunities represented 59% of CFO compensation in 2019, up from 56% in 2018.

“Boards and senior management continue to emphases the alignment of pay outcomes with company performance,” CAP said in its report. “We expect the trend in reduced bonuses to continue in 2020 in light of the COVID-19 pandemic and the resulting economic downturn,”

Long-term incentive pay opportunities, on the other hand, rose 8.3% for CFOs in 2019, in line with the increase in 2018. On average, performance-based plans accounted for nearly 60% of LTI awards, a trend that CAP sees continuing as boards embrace it over time-based equity awards. The other portion of LTI was delivered through an equal mix of stock options and time-restricted stock awards.

“Since many companies made their equity grants early in 2020, prior to the impact of the pandemic on the stock market, we may not see the pandemic’s impact on LTI levels until the 2021 grants are disclosed,” said CAP.

Indeed, because of the difficulty in setting performance-based goals in the time of a global pandemic, CAP expects to see an increase in time-based awards for equity grants approved after the pandemic started. However, it expects the increase to be a “short-lived shift.”

Total direct compensation for CFOs, at the median, increased 3.6%. That was down from 7.4% in 2018 and 9.9% in 2017. In comparison, total direct compensation for CEOs rose 4.4.% in 2019. Total compensation for CFOs continues to be about one-third that of CEOs.

By industry, CFOs in utilities, financial services, materials, information technology, and health care saw the largest increases in median total compensation. Utilities far outpaced growth in other sectors, with median CFO compensation rising nearly 19%. CAP attributed the sharp increase to a 7% growth in operating income for the industry.

The companies in CAP’s sample had a fiscal year-end between September 1, 2019, and January 1, 2020.