Human Capital & Careers

Losing Altitude

CFO pay in 2008 fell for the first time in years as the recession dragged down corporate performance.
Russ BanhamNovember 1, 2009

All good things must come to an end, and that includes the rise in CFO pay during recent years. Following a 4% increase in 2007, total direct compensation for CFOs fell 4% in 2008, thanks to the recession. Yet there was a silver lining: base salaries continued to rise at a strong clip, an indication of the increased value that companies place on CFOs during hard times.

According to advocates of pay-for-performance, the drop in CFO total compensation is clear evidence that the system is working. Both CEO and CFO short-term cash bonuses suffered big hits last year, in lockstep with overall corporate performance declines. What’s more, finance chiefs in hard-hit industries like finance and real estate experienced the biggest total compensation decreases, while those in stronger-performing sectors like consumer staples fared much better.

“Outstanding performance should guide outstanding compensation,” says Peter Oppermann, worldwide partner at Mercer, which provided much of the data for this year’s survey of CFO compensation. Such performance, and its attendant rewards, were rare in 2008. “By and large, pay for performance — the apple pie and motherhood of executive compensation — seems to be doing what it’s supposed to,” says Oppermann.

Mercer’s latest CFO compensation survey covers 350 large and midsize companies in a range of industries, broken down into three categories: the top 50 U.S. companies by revenue, the next largest 150 companies by industry mix and revenue, and the “Midsize 150,” companies in select industries with a revenue range of $2.5 billion to $11.7 billion. Although CFOs in the top-50 category received an average 13% raise in their base salaries, their total direct compensation fell 17%, by far the largest decline among the three categories. By comparison, total direct compensation rose by 1% for CFOs in the “Large 150” category and fell by 1% for finance chiefs in the Midsize 150. (Mercer defines total direct compensation as the sum of salary, actual short-term incentives, and actual long-term incentives.)

Along with Mercer, two other organizations that focus on compensation issues — Equilar and — provided up-to-date data on CFO pay. Equilar looked at 309 companies in the Standard & Poor’s 500 stock index, while pored over Securities and Exchange Commission filings of “most highly compensated executives” for 8,000-plus public companies, says Deborah Nielsen, director of data operations for

While both Mercer and Equilar measured the fall in CFO median total compensation at 4%, pegged it at 7%. All three organizations attributed the decline in large part to the steep fall in annual short-term incentives (31% according to Mercer) or cash bonuses (22.6% and a whopping 171.6% according to Equilar and, respectively). The median cash bonus in Equilar’s survey dropped from $557,000 to $431,000, compared with a decline of $2.6 million to $950,000 in’s.

Performance Matters

Aaron Boyd, Equilar research manager, notes that the percentage of CFOs who received a bonus declined slightly, from 93.9% in 2007 to 88% in 2008 — another indication that corporate performance is having an effect on compensation. But whether pay for performance worked can only be determined for certain on a case-by-case basis, he cautions. “There indeed were cases that effectively rewarded or punished an executive, but there were others where pay did not fall in line with how the company performed,” says Boyd.

Another performance-based component of CFO pay that suffered in 2008 was equity. “As the market bottomed out, most executives lost value in the shares they held, and most, if not all, of their options became worthless,” says Boyd. “The kinds of decreases that we are seeing in incentive-based compensation payouts, the drops in equity-holding value and freezes in salary levels, [these] do mean that compensation is linked with some effectiveness to the overall success of organizations,” adds Nielsen of “Executives are definitely seeing the downside of their compensation plans right now.”

The survey data indicates that CFO pay is commensurate with industry-sector performance, rising or falling accordingly. For example, in Mercer’s study, total direct compensation for CFOs in the embattled materials sector fell 16% in 2008, while CFOs in the better-performing consumer-staples sector experienced an 8% rise in their total pay. CFOs in the financial and energy sectors both caught a 9% downdraft in total compensation, while those in the IT industry fared better with an 8% increase in total pay.’s survey tells a similar story — which includes the surprising fact that CFO total pay rose 32% in the construction sector, by far the highest increase for any industry. CFOs in the professional-services sector also experienced an increase in total compensation, 8%. But “everyone else is in the hole,” says Nielsen, including pay decreases of 12% in consumer goods and retail, 16% in heavy manufacturing, and a whopping 47% decline at finance and real estate concerns.

What the Rise in Base Pay Means

A key finding of the Mercer and Equilar studies is the continuing rise in CFO base salaries, particularly for incumbent CFOs. Mercer’s study indicates a 5.6% increase in CFO salary in 2008. “The salary hike reflects the job requirements,” says Oppermann. “CFOs are paid for their knowledge and experience, and that tends to be reflected in salary as opposed to a cash bonus, which reflects what is going on in the marketplace.”

Equilar attributes its cited 6.6% rise in median CFO salaries to incumbency. “The longer you stay, the more salary you typically get,” says Boyd.

George Paulin, chairman and CEO of compensation consultancy Frederic W. Cook & Co., says the rise in CFO salaries “recognizes the contribution of the CFO to management in this difficult economic period.” He adds that according to Cook’s own data, rising CFO salaries in 2008 are part of a larger trend. “Since passage of the Sarbanes-Oxley Act and the added regulatory and governance burdens it imposed, CFO salaries have gone up at a higher rate than commensurate salaries for the rest of the C-level suite,” says Paulin.

Nevertheless, salary is typically only about a quarter of overall CFO pay, according to Mercer (Equilar puts it at a fifth). Even with salary increases, the substantial drop in cash bonuses took a toll on overall compensation. “The big part of a CFO’s compensation is the annual cash bonus and the long-term incentive grant — not salary,” Paulin says. “The numbers in 2008 indicate bonuses are down because performance generally is down.”

CEOs, of course, will always rule the roost when it comes to income. But the gap between CEO and CFO pay narrows in some years, widens in others. Whereas Mercer’s 2007 survey indicated that CFOs had gained a little on CEOs in terms of total direct compensation, no new ground was gained in 2008. “I’m not exactly sure why this is so,” Oppermann says, “other than it shows that the true long-term performance and overall running of the operation is clearly the job of the CEO. They are the ones who are ultimately accountable for performance.”

According to, however, the CEO-CFO gap narrowed in 2008. Median total direct compensation for CEOs fell 16.5%, versus a 7% decline for CFOs. Chief operating officers, on the other hand, enjoyed a 22% increase in total direct compensation, in large part because of higher equity awards.

Don’t Cry for Me also provides data on the 30 highest-paid CFOs. Tops on the list in 2008 is Randall T. Mays, president and CFO of CC Media Holdings Inc., with total direct compensation of $45.9 million. Mays, whose company is the parent of Clear Channel Communications, is new to the top 30 list. Last year’s highest-paid CFO, David A. Viniar of still-high-flying Goldman Sachs, fell to number two this year, as his total pay dropped from $42.2 million to $37 million.

Number three on the list is a relative unknown: William Restrepo of Seitel, a seismic-data provider to the oil-and-gas industry. How did the CFO of a $172 million firm take home $34.6 million in total compensation? Answer, in part: stock options and a retention bonus granted in the wake of a 2007 merger. Number four on’s list, and the final CFO earning more than $30 million in total compensation, is Safra A. Catz of software giant Oracle.

Four finance chiefs of companies that received money from the federal Troubled Asset Relief Program were among the 30 highest-paid finance officers: Goldman’s Viniar, Colm Kelleher of Morgan Stanley ($11.1 million), Gary Crittenden of Citigroup ($10.6 million), and Michael Cavanagh of JPMorgan Chase ($9.7 million). “I’m not sure if Merrill Lynch’s CFO will make the list, as the firm did not file its proxy yet, so we don’t have the data,” Nielsen says. “That said, there are fewer TARP recipients on the list in 2008 than in 2007, which would lead one to believe that TARP companies are reeling back their compensation. Moreover, there is significant turnover from the top 20 CFOs in 2007 to the top 20 in 2008, another possible indication of pay-for-performance taking a toll.”

Reeling back executive pay was the topic du jour in the early part of this year, but the Obama Administration’s focus on health care has put the subject on the back burner. Aside from the pay restrictions levied against executives at TARP firms (see “Fray on Pay,” June) and the “say on pay” provision giving shareholders a nonbinding advisory vote on the executive compensation package, few changes are anticipated.

Regarding congressional action on executive pay, Oppermann says he doesn’t see anything coming forth “that looks like it will have some oomph. Certainly, we will not see the TARP constrictions broadened to affect all companies. The bottom line is that we don’t expect anything earth-shattering.”

Surely nothing as momentous as the financial crisis of the past 18 months, which affected everyone’s personal bottom line. But CFOs can take some consolation in the fact that their base salaries are still climbing. And, if the stock market continues to rise, it may be only a matter of time before their total pay begins to rise as well.

Russ Banham is a contributing editor of CFO.

For a look at 2008’s average compensation in common finance jobs, 30 highest-paid CFOs, and CFO compensation medians in 10 sectors, click here.

In 2008, the median CFO total compensation dipped ever so slightly below the 2006 level.


A stronger emphasis on long-term incentives makes larger companies more lucrative for CFOs.