Human Capital & Careers

Things Are Looking Up

CFOs are enjoying larger pay gains than other C-level executives, for good reason.
S.L. MintzNovember 1, 2008

Even before 2008 gave us a September to Remember on Wall Street, CFOs were enjoying a notable rise in compensation, with the increases to their pay packages outpacing those of other C-level executives. From the passage of Sarbanes-Oxley through the subprime meltdown and into what feels like a perpetually looming recession, CFOs have had to shoulder tremendous responsibility for maintaining the integrity of corporate financials even as they look for ways to improve them.

“In the big issues, CFOs are front and center,” says Melissa Burek, a principal at Mercer, which provided most of the data for this report. And few experts see CFOs stepping out of the limelight any time soon, which should bode well for future pay prospects. “More visibility,” says Alexander Cwirko-Godycki, research manager for executive-compensation research firm Equilar Inc., “leads to a ratcheting up of pay.”

While CFOs still lag chief executive officers and chief operating officers in terms of average compensation, they are gaining. Median total direct compensation — comprising base pay and short- and long-term incentives — moved up 5.4 percent for CFOs, to $2.3 million, while CEOs slipped back by 1.4 percent, to $7.3 million, and COOs dropped by 1.7 percent, to $3 million. CFOs achieved the steepest rise in actual short-term incentives, with an average gain of 11.5 percent (to $558,000) versus a decline of 3.5 percent for CEOs (to $1.5 million). COOs held steady at $725,000. Base salaries rose 3.1 percent for CFOs, to $516,000, while CEO base pay remained flat and COOs saw only an incremental gain of 0.6 percent, to $635,000.

At the Top, Big Pay but Huge Turnover

Company size is, of course, a major determinant in overall compensation. At the 50 largest companies in the United States, CFOs pocketed a median $4.5 million in total direct compensation. At “Large 150” companies (defined by Mercer as having revenue of $8 billion to $42 billion), CFOs earned a median of $2.7 million, while CFOs in the “Midsize 150” ($1 billion to $8 billion) earned $1.4 million. Short-term incentives were similar across all three groups, but long-term incentives varied widely.

The median base salary for CFOs at Top 50 companies was $614,000, while at Large 150 companies it was $576,000 and at the Midsize 150 it was only $433,000. Median short-term incentives also came in vente, grande, and tall to match revenues: $998,000, $734,000, and $332,000, respectively.

CFOs at the peak of the pay pyramid hauled in princely sums. David A. Viniar of Goldman Sachs, who in early 2007 directed Goldman traders to trim mortgage exposure, snared first place with a whopping $42.2 million in total compensation, according to’s CompAnalyst Executive, which identified the top 20 earners. Safra Catz at Oracle and Gary Crittenden at Citigroup each earned more than $30 million, while 15 more counterparts each earned more than $10 million. “These CFOs are all leaders in their respective industries. Does their 2007 compensation surprise me? No,” says Josh Lurie, vice president, executive compensation, at Pivotal roles in volatile capital markets could propel CFO compensation still higher. “In certain industries,” Lurie predicts, “I can see CFO pay starting to creep up toward the CEO’s.”

Proving that finance departments have been marked by sweeping changes over the past two years, only 2 of the 20 highest-paid executives in 2006 remained on the list in 2007: Goldman’s Viniar, formerly No. 2, and Stephen Chazen of Occidental Petroleum, who slipped from No. 1 in 2006 to No. 8,with $13.8 million in total 2007 compensation. Bank of New York Mellon Corp. CFO Bruce Van Saun, last seen in the 2004 survey, reappears in 7th place this year, with $15.8 million. Citigroup and Aetna, both on the 2006 roster, returned in the 3rd and 16th places, respectively, but with new CFOs: Gary Crittenden ($31.9 million) and Joseph M. Zubretsky ($10.6 million).

In a year when one woman was handed the Republican nomination for Vice President and another narrowly missed becoming the Democratic Presidential candidate, the 20 best-paid CFOs included only one woman. Kathleen Quirk at Freeport-McMoran earned $16.1 million, according to, landing her at No. 6. The 2006 list also featured only one woman, but four graced the list in 2004 (from JPMorgan Chase, International Game Technology, Merck, and PepsiCo). The results seem certain to change next year, however, given that Alltel CFO Sharilyn Gasaway was recently identified by Fortune magazine as the highest-paid female executive in the United States.

In many ways, the realm of CFO compensation has been, and may continue to be, as volatile as Wall Street lately, if not more so. Not only do individual CFOs come and go from the Top 20, but so do their companies. Some disappear overnight, like Bear Stearns, while others file for bankruptcy (Lehman Brothers), are acquired (Merrill Lynch), or see results plunge (Toll Brothers, Lennar Homes). The impact of new disclosure rules, which cast even more limelight on CFO compensation, may have an effect.

Call it coincidence or cause and effect, higher CFO turnover accompanied rising pay levels. Mercer reports that CFO departures, which ran at an 11 percent clip among the 350 companies in the survey in 2006, increased to 17 percent last year. That means more than a quarter of companies saw a new CFO enter the scene in 2006–07, sometimes more than once.

The health-care sector saw the highest percentage of turnover; more than 4 in 10 CFOs moved on during 2006–07, very closely trailed by CFOs at IT firms. Those 24 months saw more than 1 in 5 CFOs relinquish their posts in the financial, consumer-services, industrial, consumer-goods, and utilities sectors. Energy-sector CFOs enjoyed the lowest turnover rate, just shy of 1 in 5.

Home-Team Discount?

Overall, according to Mercer, CFOs experienced significantly more turnover than CEOs last year — in one sector (IT) by a nearly 5-to-1 margin. All that change proved a mixed bag for finance staffers eager to move up. While companies did tend to choose their new CFOs from within (56 percent, versus 44 percent from outside), often the new CFOs did not earn what their predecessors made. On average, says Mercer, new CFOs in 2007 received 6.2 percent less than their predecessors. Only 1 percent of upwardly mobile insiders negotiated packages 20 percent larger than departing CFOs. Meanwhile, outsiders surpassed their predecessors’ compensation packages 23 percent of the time, negotiating pay boosts in excess of 20 percent nearly 10 percent of the time. (For more on how to negotiate the best possible deal, see “Flexing Your Muscle.”)

“There is not as much hiring between companies, and more emphasis on hiring from within versus a desire to get a big name,” says George Paulin, chairman and CEO of Frederic W. Cook & Co., a national compensation consulting firm. “That has had a moderating effect on CFO compensation.”

That may mean that macroeconomic reality trumps, or at least mitigates, the increasing importance of the CFO post. If so, CFOs hardly seem ready to settle for less. A recent survey by CFO Research Services (in conjunction with Ajilon) found that when a finance executive was considering a job offer from a new employer, compensation was identified as among the three most important criteria by 72 percent of CFOs; location, the second most commonly selected factor, was cited by just 47 percent.

For CFOs eager to bring home fatter paychecks, executive compensation critic Graef Crystal offers a note of caution. Using pay data from Equilar, Crystal scrutinized 2007 pay packages and market performance to find “the most relatively highly paid CFOs” and “the most relatively low paid CFOs” at 578 companies with revenues in excess of $3 billion. His report, cheekily titled “It’s Good to Be the King CFO,” ranked individual compensation packages based on their deviation from competitive pay predicted by models he devised.

Under that scheme, Goldman’s Viniar topped Crystal’s “most relatively highly paid” list by virtue of making more than six times what peer-group CFOs made. Conversely, CFO Thomas Szkutak appears to be working nearly for free, pocketing just $153,000 in total 2007 pay, a figure 95 percent below the level predicted by Crystal’s model.

Beyond noting this year’s eyebrow-raising high and low earners, Crystal’s study sought to uncover the underlying reasons for wide variations in compensation. He quickly ruled out a correlation between pay packages and a company’s total return less the total return for the S&P 500 (in other words, forget pay-for-performance). Instead, he attributes a third of the variation to two factors: company sales and pay risk in the CFO pay package (principally the stock-option component). A single factor governs another 37 percent of the difference in CFO pay: the extent to which a CEO earns more or less than a competitive figure compared with other CEOs. “The more the CEO is overpaid,” says Crystal, “the more likely it is that the CFO will be, too.” That could add an interesting twist to the due diligence that would-be CFOs conduct.

Assessing the compensation landscape may also become trickier as the United States moves from generally accepted accounting principles to international financial reporting standards, according to compensation consultant David Johnson at Ernst & Young. Long-term-incentive programs, which may span the transition period between GAAP and IFRS, may give rise to unintended payouts or other unanticipated results that shareholders or executives may question.

And yet the need to shepherd companies into an IFRS world is just one more reason that CFOs are likely to enjoy continued momentum regarding compensation. While few might care to bet on the direction of tomorrow’s Dow Jones average, it’s a far safer wager that CFO pay will continue to trend up.

S.L. Mintz is a deputy editor of CFO.

To see the results of Mercer’s compensation survey, as well as a list of 2007’s top-earning CFOs, click here.