Nice Work If You Can Get It

With stock options declining, top-tier CFOs made less last year. Those at the top of the tier still made plenty, however.

The days of wine and roses — and gold-plated dental floss — may finally be over for high-profile finance chiefs.

According to the CFO.Com/Mercer CFO Compensation Survey, compensation growth for upper-echelon finance chiefs leveled off last year. In fact, total median compensation for CFOs in the survey dropped 1 percent in 2001.

The reason for the compensation stagnation? Mostly, top-drawer finance chiefs didn’t make tens of millions of dollars from gains on the options they exercised in 2001. With financial scandals being uncovered at a nearly weekly pace, some institutional investors have begun to openly question the wisdom of basing executive compensation on the short-term peformance of a company’s share price. And with an increasing number of corporations begining to expense options, some companies may chose to reduce the number of grants they offer relative to other forms of compensation.

Of course, back in the nineties, some investor groups flat-out demanded that the compensation of top finance managers be tied in large part to a company’s share price. After all, the activists argued, managers should be rowing in the same boat as shareholders.

The argument may still hold water. But with millions in executive compensation riding on a company’s share price, it appears that a few finance managers have simply gamed the system. To hit their earnings targets — and hence keep share prices moving up — senior executives at a few corporations have played fast-and-loose with their bookkeeping. Others have committed out-and-out fraud.

Accounting-gate won’t have corporate boards scrambling to set up lavish stock option plans for senior finance executives, that’s for sure. And as the survey reveals, options for top senior executives simply aren’t paying off the way they used to, either.

While options are still the biggest piece of the pay pie for many top-earning finance chiefs, the survey indicates that those equity grants started to lose their luster in 2001. In fact, the median gains on exercised options by top finance chiefs fell to $616,000 last year.

Admittedly, $616,000 isn’t exactly chicken scratch. Still, it’s a considerable drop-off from $964,000 — the average median gain for top CFOs who exercised options in 2000.

Even finance chiefs at the apex of our 2001 Top Ten list saw their option gains thin. Tyco International’s departing CFO Mark Swartz, for instance, realized option gains of $14 million last year. While that’s not quite a poke in the eye with a sharp stick, it’s not even close to the nearly $50 million Swartz raked in from exercised options the previous year.

Can’t Buy Me Love

Developed for by Mercer Human Resource Consulting , the CFO Compensation Survey looks at the salary, bonuses, and long-term incentives of 234 finance chiefs working at 350 of the largest U.S. companies ($1 billion in revenues and up) that filed proxies between July 31, 2001 and April 5, 2002. The survey also looks at the pay of 355 CEOs.


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