The Quiz

CFO Pay Trends by Industry: Wildly Diverse

Especially notable is the disparity in finance-chief versus CEO compensation in several sectors.
David McCannOctober 29, 2013

BDO, the accounting and advisory firm, recently performed an analysis of CFO vs. CEO pay trends at 600 midsize public companies. It shows that total pay for 2012 — salary, annual bonus and long-term incentives — rose 5 percent for finance chiefs and 6 percent for their bosses, compared with the prior year.

But that isn’t nearly the whole story.

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Pay trends were significantly different from industry to industry, and the CFO and CEO positions had vastly divergent compensation trends in several industries.

The latter point was most vividly made in the technology sector, where CEOs enjoyed a 16 percent pay surge, while CFOs got by on just 5 percent more. Why the big gap?

ExecPay_Rev“The pay-for-performance demands of proxy advisory services have been especially strong in the technology sector and have left the other executives less scrutinized,” says Randy Ramirez, a senior director in BDO’s global employer services practice.

Long-term, performance-based pay is generally in the form of stock options or restricted stock. So, the equity markets’ performance in 2012, when the Dow Jones Industrial Average rose by 7.2 percent, boosted the earnings of technology CEOs that had outsized stock-based pay as a percentage of total pay.

That 7.2 percent may not seem like much when stock markets’ 2013 tally is in the books. On Oct. 25, the Dow closed 18.8 percent higher for 2013.

In the retail sector, the opposite trend from the technology sector’s occurred — CFO pay climbed by 6 percent while chief executives’ compensation fell by 1 percent. “Retail companies haven’t been leveraging equity nearly as much as technology firms have,” Ramirez says. “At the same time, CFOs roles have increased tremendously — we’re finally seeing boards noticing that some catch-up is in order. CFO base pay is up, and annual incentive opportunities are up.”

The roles of CFOs have grown larger in many industries, but the opposite is true in a few key ones.

In the health-care sector, CEO compensation climbed by 8 percent, while finance-chief pay retrenched by 1 percent. “The CFO role hasn’t changed much [in health care] in years — it still hasn’t manifested as a highly strategic role,” says Ramirez. “But with everything that’s going on in health care, boards have gotten extremely careful about putting the right CEO in place. It used to be that it was good enough to be a good businessperson or have some health-care experience. Now they want someone who is very seasoned and knows the regulatory landscape inside and out, and they’re really bidding up the pay.”

Manufacturing CFOs likewise have not historically had strong roles compared with finance chiefs in most other industries, says Ramirez. In manufacturing, both CFOs and their bosses fared miserably in 2012 when it came to compensation. While CEO pay was down 6 percent, finance chiefs’ pay plummeted 12 percent. At manufacturing companies, it’s common for CFOs to rank as low as fifth in earnings, Ramirez says, behind the chief operating officer, chief manufacturing officer and sometimes even the chief legal counsel, as well as the CEO.

CFO pay hikes were highest in the banking sector, soaring 18 percent in 2012. CEOs fared well too, moving up by 10 percent. The raw pay numbers, though, were by far the lowest in any industry: $1.5 million for chief executives, $660,000 for finance leaders.

“Compensation in bank financial services hasn’t been the same since the TARP days, but now it’s finally starting to make a comeback,” notes Ramirez. “Eighteen percent CFO change in one year? That’s phenomenal. There’s some renewed confidence in middle-market banking and the banks are starting to bid up on some serious talent.”

BDO defines the “middle market,” the portion of industry addressed by its 600-company study, as companies with between $250 million and $1.5 billion in annual revenue. For its analysis, it randomly chose a cross-section of companies in each of eight broad industries, spaced out evenly between the two revenue thresholds.