More CFOs received salary raises in 2021 as well as larger bonuses and long-term incentive payouts, according to the most recent Compensation Advisory Partners (CAP) Pay Trends report.
The study, summarizing 2021 compensation actions among 130 companies with median revenue of $14 billion, showed that 62% of companies increased their finance chief’s base pay. Among CFOs who received salary increases in 2021, the median bump for CFOs was 4%, compared with 4.1% in 2020.
CFOs on average also saw a 17%, 10-year high increase in total compensation (cash plus equity). That was substantially higher compared with 2020 when total comp increased by just 3%. The jump in total compensation was driven by large increases in variable incentives (annual incentive payouts and long-term incentive awards), CAP said.
Last year “was a unique year with strong financial performance that supported higher pay, combined with lower payouts in 2020 due to the pandemic uncertainty that contributed to much higher rates of increase than we’ve seen in the last 10 years,” said Kelly Malafis, a founding partner at CAP. “We expect 2022 pay levels to stabilize and continue the rate of increases we saw in 2021.”
The survey found that about 75% of finance executives had a higher bonus payout in 2021 than the year prior. Bonuses increased significantly throughout the C-suite, with CEOs and CFOs getting a 34% median increase in payouts. The bonuses were credited largely to operating income numbers, as companies that raised their operating income paid bonuses approximately 43% higher for CFOs than they did a year ago.
CFOs in particular are looking for equity or cash upfront in order to have an incentive to stick around, according to Malafis.
“Salary is an important factor, as it is the most tangible for the role, but at the most senior executive levels, we often see an emphasis on long-term incentives, primarily in the form of equity,” Malafis said. “Long-term incentives align with shareholder value creation over time and are much more leveraged than a fixed salary.”
The use of stock options slightly decreased (3%-4%) in 2021 over 2020 as companies continued to emphasize performance-and time-based stock awards.
When asked how a small or startup company could attract an experienced CFO in the tight U.S. jobs market, Malafis said providing incentives to a CFO by putting the potential to earn in their own hands can help.
“Our study shows that compensation programs structured to reward for performance, and are leveraged based on performance, are very attractive when company financial and stock price performance are strong,” she said. “To that end, companies looking to attract executive talent that is incentivized to drive sustainable performance over multiple years can design a pay program that rewards for that performance.”
When a company has limited cash, it “can offer equity that vests over time which can be very valuable as a start-up’s value proposition becomes more tangible.”
In determining a compensation package, Malafis believes there is work to be done on both sides, that work being research and evaluation into what the goals are for both parties.
“From a compensation approach standpoint, most companies establish and denominate target incentive opportunities as a percentage of base salary, therefore salary actions will impact other elements of compensation for most companies,” Malafis said.
For CFOs considering a move up to CEO, a CFO’s total compensation continued to approximate one-third of a CEO’s total pay.
CFOs did well compared with CEOs in 2021, according to the CAP study. The median base salary increase for CEOs that received a raise in 2021 was the same as that of CFOs (4%), and the average total compensation increase for CEOs was just one percentage point higher. But more than half of CEOs did not get any increase in their base salary.