How Compensation Computes
By Eric KrellBusiness Finance Magazine
To find out exactly how well e-business pays, Business Finance zoomed in on the technology-related drivers of finance professionals' compensation. Top-paid CFOs place a much greater emphasis on IT management and e-business activities than their counterparts with more modest salaries.
The year 2000 has been exciting on the technology front, but confusing too. E-business established itself as a critical business strategy, while companies scrambled to slap an 'e' onto as many processes as possible. Overwhelmed by the size and scope of these transformations, large organizations turned to their IT controllers, a new breed of tech-savvy finance professionals, to get a handle on soaring IT spending. Yet, at the same time, the chilling of Internet-related stocks sent companies a more cautious message: Sound financial fundamentals trump high-tech hype. While that message certainly resonates with finance professionals, it should not obscure the fact that online procurement, Internet-enabled banking, and other e-business and automated processes have become embedded in enterprise operations and will be increasingly crucial to an organization's success. But how does all this e-hype (not to mention the nuggets of e-truth) translate to a finance professional's bottom line?
Finance professionals who participated in the 2000 Finance Executive Compensation Survey expressed ambivalence toward technology-related salary influences. While the survey results indicate that involvement in e-business strategy and activities gives compensation a significant boost, the effect of IT management activities on compensation was more difficult to nail down. Although top-paid CFOs reported that IT management is a key driver of their compensation, the survey findings suggest that IT management activities can actually diminish the salaries of finance directors, controllers and people in other lower-level positions. Business Finance drilled down into the technology-related findings and interviewed several finance executives at new economy companies to more closely examine the value of IT management and e-business activities to finance professionals.
The New Economy Boost
One of the most efficient ways finance professionals can increase their compensation is by joining a company that is actively pursuing an e-business strategy. A healthy majority of all respondents (61 percent) reported that their companies currently are involved with e-business activities. The survey data suggests that finance professionals who work for a company with e-business capabilities earn, on average, 16 percent ($15,263) more than those whose companies have yet to invest in an e-business strategy. For CFOs specifically, the compensation boost associated with working for an organization pursuing e-business is a modest 11 percent.
Bradford C. Violette, executive vice president of AOC, a financial staffing and recruiting firm in Charlotte, N.C., says that IT management skills are a midrange priority for companies seeking senior-level finance executives. The top priorities, he says, typically include breadth and depth of management experience, personality qualities, specialty expertise (M&A or IPO experience, SEC reporting, operational issues, etc.), and specific industry experience, respectively. "IT experience tends to fall somewhere behind these four evaluation criteria," Violette notes. "However, it can and does bubble up, depending on the circumstance." He says that companies look for finance executives with IT management experience related to operational efficiency, automated processes and vendor familiarity. For example, if a company working with a specific vendor on a major project needed to hire a CFO, IT experience likely would be a key evaluation criterion in its search.
The survey findings support Violette's perspective. More than half of the CFOs who responded are responsible for managing IT, and 70 percent indicated that they play key leadership roles in implementing IT systems. Yet in both cases, CFOs who take on greater IT responsibilities earn, on average, only 4 percent more in total compensation than their counterparts who do not have IT responsibilities.
Lower-level finance professionals, such as finance directors and controllers, who take on IT system management seem to suffer a hit in compensation for their efforts. For example, finance directors who have played a leadership role in implementing a new IT system earn an average compensation of $136,076, while those who have not directed IT implementations earn an average of $143,735. These results suggest that IT management responsibilities remain a low-benefit responsibility for finance professionals.
IT Drives CFOs
Despite the questionable value of taking on leadership roles in IT management, high-paid CFOs report that IT management is a key driver of their compensation. When asked to select the two most important factors (among strategic planning, IT management, business/financial reporting, creating shareholder value and managing/developing people) driving their current and future compensation, only 9 percent of CFOs selected IT management as a key driver of their current compensation. The most frequently cited drivers of current compensation are, in order of frequency, business/financial reporting, creating shareholder value, strategic planning and managing/developing people. But those 9 percent who reported that IT management is a key influence on their compensation have an average compensation of $165,677 and outearn CFOs who selected creating shareholder value ($162,403), strategic planning ($149,432), managing/developing people ($147,594) or business/financial reporting ($139,882) as key drivers of their current compensation. Some of those differences are modest; the salary gap between CFOs who identify IT management as a key driver of compensation and those who identify creating shareholder value as an important driver averages a mere $3,274. And because participants were asked to identify the two most influential drivers of compensation, respondents could select both IT management and creating shareholder value. Yet a substantial gap in average compensation exists between CFOs who believe IT management activities drive their compensation ($165,677) and those who do not ($147,119).
Patt Mayer, area manager of consulting services in the San Francisco and Oakland, Calif., offices of Robert Half International Management Resources (RHIMR), hires CFOs and finance executives on a per-project or interim basis for RHIMR's client companies. She says that more businesses are looking for temporary senior-level finance executives who are systems savvy. "That doesn't mean they want a programmer," Mayer explains. "They want a finance executive who knows what to expect in the IT world, someone who can speak the language and generate the appropriate reports. For CFOs, the ability to communicate with the IT department is important."
Seduction Theory
Although the connection between IT management and finance executive compensation remains hazy, many CFOs are expanding their IT-related skills by delving deeper into e-business opportunities. A gung-ho attitude and a strong interest in shaping company strategy appear to play important roles in a CFO's e-business activities.
Bernard Jacob, CFO of the Consumer Financial Network (CFN), a provider of HR portal solutions in White Plains, N.Y., says he was seduced by e-business 18 months ago. A former investment banker with Chase Manhattan Bank, Jacob informed the search firms he contacted that he wanted to find a challenging, high-growth and fun environment with significant wealth-creation opportunities. "As I met with e-commerce companies over a 12-month period, I found that the energy level and passion is greater in a pure e-commerce company than it is in a division or subsidiary of a much older, more disciplined company," he says. Jacob admits he waited longer than other finance executives to buy into e-business. "Having come up in an old economy world, I had a wait-and-see attitude," he says. "Many of us wanted to see if the Internet and e-commerce were real and if they had traction that would last. Yet I still think it's early. In a nine-inning game, I think we might be entering the second inning. The proof of that is that old-line companies that have remained on the sidelines for five years are finally saying, 'We've got to be involved in e-commerce too.' "
Jacob held discussions with 10 new economy companies before deciding upon CFN. His evaluation process focused on finding a healthy balance between experience and vision. "The opportunities I stayed away from were the ones where I was the oldest person in the company," he says. Second, Jacob looked for a "mature and seasoned" senior management team whose members' experiences jibed with his own. Third, he looked for a company in which the next layer of management was brimming with "younger, high-energy, visionary risk-takers."
"The term seduced is an apt one because you literally have to dive in and fall in love with e-business," says Katherine Vilchinsky, who left Nabisco Inc. to become the first CFO of ShareMax Inc., an online strategic sourcing firm in Parsippany, N.J. "I came here because I felt that being in the position to truly start a company was a compelling proposition. I fell in love with the idea of taking ideas from conference room brainstorming sessions and watching them come to life as we built the company."
What IT Needs From Finance
Just as Jacob and Vilchinsky evaluated the e-business companies they wanted to work for, so too do new economy organizations need finance executives to bring certain qualities to the table. Those qualities reflect the skills that top-paid finance executives are expected to bring to IT management and e-business processes.
CFN, for example, saw in Jacob the opposite of what he saw in the company. "They saw a person trained in financial and fiscal discipline," says Jacob. "They also saw someone with financial and business analysis abilities and someone, I hope, who can impart marketplace experience. We're developing very rapidly here. And what a company needs at this stage is the imposition of process, structure, and greater business and financial analysis."
Gary Kaplan, president of executive search firm Gary Kaplan & Associates in Pasadena, Calif., says that both IT management and e-business experience are common search criteria that organizations use to seek out finance executives. "We're hearing that companies want their CFOs to help shape e-business strategy while also instilling more financial discipline in IT processes," says Kaplan.
According to the survey, executive search firms likely will see those types of requests more frequently. CFOs who indicated that IT management will be one of the most important drivers of their future compensation significantly outearn CFOs who believe other drivers, such as financial reporting and managing people, will have a greater influence on future earnings.
