In the wake of the financial crisis, Occupy Wall Street protests and the debut of shareholder “say on pay” voting in 2011, investors have ratcheted up their scrutiny of executive compensation at public companies. Not surprisingly, one trend has grown stronger than ever since we last surveyed CFO compensation two years ago: the alignment of pay and performance.
Survey after survey reveals the strength of the trend, including those from Mercer, Equilar, Towers Watson, Kenexa, the Association for Financial Professionals and the Financial Executives Research Foundation. While the evidence is wide ranging, it boils down to a substantial increase in the number of companies now providing long-term, performance-based equity incentives.
According to Mercer, for example, the prevalence of performance-based stock jumped from 61% of companies in 2010 to 71% in 2012. “We’ve witnessed a steady increase in the past number of years in the use of performance-based stock,” says Ted Jarvis, global director of rewards data, research and publications at Mercer. Similarly, FERF found that 80% of public-company CFOs received a form of long-term, stock-based incentive award in 2012. Pay-for-performance alignment is a “key watchword” for 2013, according to FERF, which partners with Grant Thornton on its annual executive-pay survey.
Equilar’s annual CFO pay survey indicates a gradual rise in the awarding of performance shares. “Performance shares in the S&P 500 grew in prevalence during 2012, to 69.1% from 63.4%,” says Aaron Boyd, director of governance research at the Redwood City, Calif.-based executive-compensation data firm. By comparison, 56.7% of the S&P MidCap 400 and 42.4% of the S&P SmallCap 600 award performance shares, says Boyd.
The pay-for-performance trend is good news for finance chiefs, given that the economy and equity markets are on the rise. But it’s not the only tidings from the world of CFO compensation. Below, we report on overall pay levels and the highest-paid finance chiefs; differences in finance pay across company size, industry, and gender; how CFO pay is trending against CEO pay; and more.
A Happy Median
Let’s start with what everyone wants to know: How much did CFOs take home in total compensation last year? (Total pay generally includes a salary, a bonus that is a percentage of this salary, and long-term incentive compensation, such as performance-based stock, restricted stock and stock options.)
The answer depends in part on the size of the companies where they work. For the S&P 500, CFO median total compensation in 2012 was $3.1 million, up 5% from 2011, according to Equilar. Not too shabby, and a ways up from the comparatively measly $2.4 million that S&P 500 CFOs were paid in 2009, the last year of the recession. Median total compensation of CFOs in the S&P MidCap 400 and S&P SmallCap 600 was $1.7 million and $1 million, respectively.