A Silver Lining for CFOs
A larger question, though, is how CFO pay levels will evolve during this period of increased disclosure. According to a recent analysis of S&P 500 companies done by compensation research firm Equilar Inc., CFO pay (including bonus, stock options, and other compensation) increased by 11 percent in 2004, the first full year after Sarbanes-Oxley added greater responsibilities to the CFO position. For 2007 — with the SEC’s new rules increasing the pool of CFO salaries publicly disclosed by companies — median salaries likely will decrease somewhat from the prior year.
In the view of Borges and others, the enhanced public information available about compensation represents “good news for CFOs.” He explains that, in much the same way disclosure of CEO salaries led to higher pay for chief executives, the revelation that CFO X isn’t compensated as well as CFO Y may put X in line for a raise.
Further, CFO pay could get a boost because the SEC is requiring companies to discuss and analyze the philosophy behind their compensation practices. Since most companies — in theory anyway — hold to the philosophy that their CFO should be extraordinary, pay levels may rise to underscore the point.
Bentley College assistant accounting professor Rani Hoitash says that when companies provide the reasoning behind CFO pay, the information benefits their peer companies, too, as a particularly good approach by one spreads to others.
Borges expects the growing public exposure to lead companies to become more analytical about CFO pay. “Now,” he says, “companies are armed with all this new information [about one another].” That knowledge may “enable companies to be more deliberate about this process.”
What about potential embarrassment for CFOs from having everyone know their pay levels? That’s old hat for most of them. “Once you’ve worked in a public company, you’re used to everyone knowing exactly how much you make,” says Heidrick & Struggles’s Kamerick, whose total annual compensation of $1.7 million was disclosed for the first time last year.
Kate Plourd is a reporter at CFO.