There is no question that executive compensation is a delicate topic these days, one that is garnering both intense regulatory scrutiny and increased shareholder control. But it appears that boards of directors may have found a clever way to appease both the public and their executives. According to this year’s tally of CFO pay, finance chiefs are in an enviable position: they have a good story to tell investors about the austerity of their compensation even as they take home healthy paychecks.
Viewed through one lens, it certainly appears that CFOs “are working harder for what is essentially less compensation,” as Deb Nielsen, director of executive compensation at Salary.com, points out. Thanks to marked declines in the value of long-term incentive stock and option award packages, total direct compensation is down a whopping 21% (median) for the 30 top-paid CFOs, according to Salary.com, and a median 3.1% for the full S&P 500 (as analyzed by Equilar). And that’s on top of the already-steep cuts to salaries and bonuses that CFOs endured the year before, when the financial crisis was in full swing.
Then again, CFO salaries and bonuses are up, some dramatically, over last year, making finance professionals the winners on that front compared with all other white-collar positions, according to data collected by the Association for Finance Professionals (AFP).
Adding to that good news, market rallies have sweetened the noncash components of those 2009 compensation packages since they were awarded. “While overall pay decreased for CFOs again last year, the data is somewhat misleading,” acknowledges Aaron Boyd, Equilar head of research. Equity and stock awards were valued lower “because they were granted at the bottom of the market in early 2009.” Now, many are in the money — for the time being, at least.
So is CFO pay up or down this year? The answer largely depends on the size of the company, the health of its stock — and, perhaps, who is asking the question.
To be sure, whatever good news there may be for CFO compensation is more than offset by continuing pressure. For our annual survey, CFO reached out to four data crunchers (Equilar, Salary.com, the AFP, and the Financial Executives Research Foundation) for statistical assessments. While there are some differences in their methodologies, all agreed that CFOs are being asked to take less in compensation at a time when more is required of them — including, ironically, complying with a host of new pay-related rules, such as the expansion of proxy disclosures (which require an explanation of the risks that compensation practices across the organization may create) and new quantitative and educational tasks associated with the shareholder “say on pay” provisions contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act (see “The Calm Before Reform“).
“CFOs need to ensure that the link between pay and performance is simply and clearly explained, so that shareholders don’t reach the wrong conclusions,” says Equilar’s Boyd. “Otherwise, there’s always the specter of increased scrutiny from the media, regulators, and investors.”