A Quick Look at CFO Total Compensation

A Quick Look at CFO Total
Compensation
Proxy Analysis of 20 Mixed Industry Organizations with Revenue Between $1 billion and $10 billion
August 2013
RDBuford Executive Compensation Consulting LLC
A Quick Look at CFO Total Compensation

We recently completed a proxy analysis for a company with revenue of about $3.8 billion, looking at the position of chief financial officer (CFO) at a peer group of 20 public companies in four industry groups (beverages, direct marketing, personal care products and home furnishings). The client has annual revenue of about $3.8 billion and the peer group averaged $3.795 billion ($3.25 median) in revenue for fiscal 2012, ranging from $1 billion to $10 billion. Four of the 20 were Fortune 500 companies in 2012 Three of the 20 are female whose base salary is about 25% higher than their male counterparts The following findings may be of interest to many of you in terms of how your own CFO fits into this particular sample. Keep in mind that this data covers only the most recent year.
What Determines Executive Pay

While proxy pay data is always interesting and somewhat blunt (I mean it is right there in black and white with names and titles), it is also misleading in that many conclude that competitive pay information is the primary determinant of your compensation or that of your senior executives. We suggest that you take a broader look at how executive pay is actually developed and delivered.
The following variables come to mind, generally ranked from most important down to those less critical Your views will likely not match these; let me know your company priorities.
Potential Executive Pay Determinants

Position, scope of job, accountabilities and overall impact on success of employer Performance of incumbent Performance of company Competitive pay practices and levels Size of company and stage of development Consequences of management turnover Industry Location Public or private ownership Pay philosophy of company Volatility of equity Education and other credentials required to perform the job
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Pay Determinants contd

Each of these influencers on pay will be further discussed in my next update.
Summary of Proxy Findings

For the 20-company proxy review the pay findings are summarized here for the position of corporate CFO:
Average base salary $478,000 (low $275,000, high $750,000) Average annual bonus $464,000 (low $0, high $893,000) Average long-term $900,200 (low $0, high $2,300,000) Average all-in $1,935,000 (low $1,040,000, high $3,500,000)
The all-in data exclude items such as perks, insurance premiums, relocation and other amounts in the All Other Compensation column from the proxy. Long-term amounts are based on existing valuation methods and represent the dollar amount of the grant date fair value

Another interesting observation about this limited data: it can be used as a very rough model for total compensation for the CFO position in firms with similar characteristics to the peer group
For example, the average annual incentive is about equal to 1X base salary; the average long-term incentive is about equal to 2X base salary. Total compensation for 2012 was about 4X.
These multiples are generally competitive with the market and while they are not as specific as some would prefer, they provide guidance in building the basic pay structure.

Other observations from this cut of companies include:
Most CFOs are not board members There were two common titles: either EVP and CFO or SVP and CFO Most CFOs are number two in terms of proxy pay ranking; this group counted several at the fifth position and two ranked third Stock ownership for CFOs did not reach 1% of outstanding for any of the group (based on the beneficial ownership table)
A Few Questions for the EC Practitioner

Do these competitive pay levels seem about right to you? Does the AIP actual of 1X base fit the market? Same question for the actual LTIP. How does your company pay when compared to this limited peer group? Is retention a major issue in the finance function? Do you have a replacement for the current CFO? When was the last time your company paid zero AIP awards? Could your business tolerate the absence of long-term awards for several years running? Is the proxy disclosure of your incentive plans used for internal communications of such plans? Do you have separate plan documents for internal use?
Addendum to CFO Compensation Analysis We recently added expanded compensation data for the CFO position in two additional groups of companies
Initial group of 20 companies with average revenue of $3.8 billion A smaller group of 21 companies with average revenue of $2.2 billion A third group of 21 companies with average of $557 million
The compensation data is summarized on the following table
Total Compensation Analysis for CFO in Three Groups of Publiclyowned Companies (excluding financial services)
Revenue Avg. Rev Low Rev High Rev CFO Compensation Avg. Base Recent AIP Recent LTIP All in Adj All in $478,000 $464,000 $900,000 $2,076,000 $1,935,000 $433,000 $380,000 $567,000 $1,487,000 $1,391,000 $377,000 $183,000 $335,000 $971,000 $924,000 Group A (20) $3.8 billion $1.0 billion $10.7 billion Group B (21) $2.2 billion $1.0 billion $4.0 billion Group C (21) $557 million $232 million $968 million

A Quick Look at CFO Total Compensation

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A Quick Look at CFO Total Compensation

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RDBuford Executive Compensation Consulting LLC

RDBuford Executive Compensation Consulting LLC