CFOs at large companies enjoyed greater compensation increases than their bosses for a second consecutive year in 2011, though the hikes were minuscule compared with the huge gains reaped the previous year, according to an analysis by Compensation Advisory Partners.
The review included the 64 publicly held U.S. companies with revenue between $1 billion and $150 billion that had the same CFO and CEO from 2009 through last year, and that filed their 2012 proxy statements by March 31. Among that group, the total pay of finance chiefs — including salary, bonus, and long-term incentives (LTIs) — inflated by 7.5% from 2010. That was more than twice the 3.6% bump-up for chief executives.
Much of that differential was attributable to annual bonus payments. While CEOs’ bonuses were flat last year, those for CFOs climbed by 3.5%. “We believe it shows that companies are considering the CFO role to be more and more important,” says Kelly Malafis, a partner with the compensation-consulting firm.
Still, the $3.1 million that the average CFO in the group earned was only about 32% of the $9.6 million their bosses tallied.
Compensation for both groups of executives had surged in 2010 because the prior year had been the heart of the recession, so bonuses and the value of equity-based compensation were at historically low levels. By comparison, 2011 increases were modest. “When companies were setting goals for 2010, they were probably nervous about settings ones that could be unattainable, so there ended up being a lot of big payouts,” says Malafis. “For 2011, while the economy was still unpredictable, it was less volatile than it had been and companies’ [spending on compensation] was probably more realistic.”
The value of LTIs didn’t pull back nearly as much as bonuses did. That makes sense, because the former are often based on fluctuations in stock price, which tend to be less volatile than single-year performance metrics like earnings per share that usually determine bonus payouts.
For the average CFO in the study, the compensation mix was 22% salary, 22% bonus, and 56% LTIs. The value of LTIs broke down as 32% stock options, 22% time-vested restricted stock, and 46% performance-based incentives.