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Corporate finance compensation surveys don't always generate the sexiest news. USA Today isn't likely to splash a pie chart on page one beneath a banner proclaiming "CFO Salaries in Midwest Climb 3 Percent!" It's not surprising, then, that the key take-aways from Business Finance's 2001 Finance Executive Compensation Survey are not what news jocks would place on the front page. But thanks to the 2,400-plus finance professionals who waded through dozens of questions, we were able to identify several characteristics that clearly influence compensation. And we believe that from our readers' perspective this information warrants bold headlines.

In a statistical analysis, five factors emerged as most predictive of total compensation when isolated from all other survey data: title, company revenue, the CPA designation, years of experience and average number of hours worked per week. Other factors were more difficult to isolate but have an obvious correlation with salary. For example, CFOs who believe the creation of shareholder value is one of the most important drivers of their compensation earn 25 percent more than CFOs who do not share that belief.

While poring over the reams of survey results, we also found newsworthy relationships among factors. For one, management-oriented finance executives, who tend to have higher total compensation, also tend to engage in IPOs, investor relations activities, and mergers and acquisitions - valuable information for finance professionals trying to climb the compensation chart.

Direct Hits

Of the five factors with the strongest correlation to compensation, title is perhaps the least surprising (another nonheadline: "CFOs Outearn Staff Accountants"), but the degree to which title correlates with compensation differences is interesting. According to the statistical analysis, the CFO's total compensation is 134 percent greater than the staff accountant's total compensation, all other factors - such as years of experience - being equal. The other four top predictors also have a dramatic impact on compensation when isolated.

In addition, the analysis identified a second group of factors that correlate less closely with total compensation but still have an effect: where in the United States the company is located, whether the respondent has ultimate decision-making authority over his or her area of responsibility, whether the respondent's company has e-business capabilities, and gender. All other factors being equal, survey participants who have ultimate decision-making authority earn 6 percent more than those who do not. Finance professionals who work for a company with e-business capabilities earn 5 percent more than those whose enterprise does not have Web-based systems. And, ceteris paribus, respondents based in the West earn the most, followed by those in the Northeast, South, Rocky Mountain region, Southeast and Midwest.

This year's study also demonstrates that corporate finance has not eliminated the gender gap in compensation. Like last year, none of the finance executives, consultants or executive search firms we asked to expand on our findings reported that they have ever directly encountered situations in which finance professionals were paid less based on gender. "I haven't encountered that, personally," says Kathy Crusco, vice president finance for Documentum in Pleasanton, Calif. "Most of the people in my finance and accounting department here are women. We're very careful about paying people based on their performance and not their gender. But, clearly, I've heard of that happening out in the industry."

The good news is that the gap is closing. According to the statistical analysis, male finance professionals now earn 8 percent more than females when all their other traits are identical. That marks a significant decline from the 10 percent gender gap in last year's study.

CPA = Certain Pay Amplification?

"We see a lot of CPA requirements from companies conducting CFO searches," says Bradford C. Violette, executive vice president of AOC, a financial staffing and recruiting firm based in Saddle Brook, N.J. "The designation is a sign that the candidate possesses the technical merit required for the job."

The Business Finance study found that finance professionals with their CPA earn 13 percent more than those without the certification when all other factors are equalized. Fifty-nine percent of CFOs in this year's survey have earned their CPA. John McAlpine, CFO of AmerisourceBergen Drug Co. in Orange, Calif., prominently displays those three magic letters atop his résumé. "I think the CPA designation is huge, huge, huge. You just don't get the opportunity without it," he says. "If you take two people with the exact same experience but one has a CPA, the CPA is going to win every time."

Although the model we used for statistical analysis this year was unable to separate the MBA's effect on compensation from the impact of other factors, the raw survey data suggests that a master's in business is just as valuable as the CPA designation. The 46 percent of CFOs with MBAs in the survey earn, on average, a total compensation of $207,101. Their counterparts without MBAs take home $151,390. "Oftentimes," Violette says, "we find the MBA is of equal or greater value than the CPA among finance executives because it signifies an ability to forge strategic working relationships with other parts of the business."

The survey did not seek to quantify the value of the institution offering the MBA, and executive search firms are split on the effect of business school brand recognition. Violette says that an MBA from a top 10 school certainly opens doors, but he's not convinced that a business degree from a less ballyhooed university necessarily closes doors. On the other hand, Gary Kaplan, president of executive search consultancy Gary Kaplan & Associates in Pasadena, Calif., believes pedigree is a major hiring factor. Kaplan says, "You'll go a lot further with a University of Michigan MBA, a Kellogg MBA, or a Harvard, Stanford or Wharton MBA than you're going to go with the same degree from a lesser institution. I don't say that because I buy into that mentality; I say that because it is true."

Size Matters

Company size may be an even juicier news item than business-school reputation. The study found that finance professionals at large companies substantially outearn their peers at smaller businesses. Just 18 months ago, a sizable percentage of top-notch finance executives at large, traditional corporations were contemplating jumping to Internet start-ups. Even today, many consider moving to small companies, albeit those without dot-com suffixes, to break out of silos, avoid the territorial battles that are more prevalent at large organizations, or broaden the scope of their skills and expertise.

"When you first go out and you decide to change jobs, the number one factor is money," notes G.M. Stetter, executive vice president, marketing and strategic planning, for Fundtech Corp., a business-to-business e-commerce payment solutions provider in Jersey City, N.J. "Later, you want to know what the job is really about," Stetter adds. "Even further into your career, the culture of the organization becomes more important. There is a certain compensation level that is suitable and acceptable, but you want to work with good people whom you can trust. When you're at a large organization, the politics and the hidden agenda take on a much bigger role. At Fundtech, you can cut through all of that. We cannot survive unless we're communicating and agreeing on things."

Finance executives at small companies also speak to the benefits of breadth of experience. At smaller organizations, the CFO tends to manage more functions and even create some of them. "You almost start with a blank sheet in some cases," Stetter says. “‘OK, we have to put in basic corporate governance, basic controls, and even formalize internal communication.'” While Stetter hasn't suffered a compensation hit for his decision to move to a smaller company, the study indicates that most finance professionals do. When all other variables in the survey are equalized, respondents at $200 million companies earn 25 percent more than respondents at $30 million businesses.

“Earlier in my career, I was less concerned about the size of a company in terms of revenue and market capitalization," says McAlpine. "Now I would say if you're not in the Fortune 100, you're probably going to plateau from a compensation standpoint."

A Strategic Mind-Set

One of the most surefire ways for finance professionals to avoid the compensation doldrums is by ratcheting up their strategic activities. According to the study, CFOs who are more management-oriented earn more than CFOs whose responsibilities reside on the transactional end of the corporate finance spectrum. That correlation holds true for most senior-level finance executives.

"When I was a controller, I probably spent half my time on transactional activities," says Dave Wolf, senior director of finance for the knowledge products division of Global Knowledge Inc., an IT education provider in King of Prussia, Pa. "Today, it's about 80 percent strategic and 20 percent transactional."

Crusco says her duties follow a similar pattern. "For example, we had a 10 percent reduction in work force in Q2," she notes. "Probably 90 percent of my involvement in that decision was strategic: 'How do we handle it? What's the right way to account for it? When do we want to do it?' And then 10 percent of that was actually 'OK, what do we put in the restructuring charge? What are the debits and the credits related to it?'" Crusco made sure her assistant controller understood the options and their implications so that he could handle most of the transactional aspects of the reduction. "When I started as the corporate controller, my role was more like 70 percent transactional and 30 percent strategic," Crusco adds. "That meant running the department in the most efficient way possible. When you come up through public accounting, you get hired based on your ability to control the financials."

Finance executives and the search firm executives who place them drive home the point that the CFO's role continues to evolve into that of a strategic business partner. Violette says AOC regularly hears phrases such as "wears many hats," "leader," "proactive change agent," "effective at highest and lowest levels of organization," and "motivator" when fielding requests to fill finance executive positions.

"We get words like 'vision' very often from our clients who need CFOs," says Kaplan. "More than anything, we're finding that the progressive CEO increasingly looks for the CFO to be a partner in the classical sense of the word. We filled a CFO position within the past year for a major telecommunications company where, truly, the president and that CFO are like Frick and Frack. They're inseparable."

However, finance executives cannot ignore the transactional while cultivating their strategic skills. "First you have to be technically capable," says Michael Fishoff, CFO of Clairol in Stamford, Conn., a division of Bristol-Myers Squibb Co. that at press time is in the process of being divested to Procter & Gamble. "That doesn't mean you have to be an expert. But you have to be capable and have resources - whether it is your accounting firm or a staff person - available to elaborate on very technical issues. Next, you have to develop broad enough experience and a willingness to delve outside of finance."

Leadership Differences

So, what are the key components of the strategic finance executive's responsibilities? The study suggests that a handful of activities - including mergers and acquisitions, outsourcing, IPOs, and investor relations - fit the bill. These happen to be the same activities Violette and other executive search professionals identify as contributing the greatest value to a finance executive's earning potential.

According to the study, CFOs who have taken a leadership position in a merger or acquisition earn, on average, 34 percent more than CFOs without M&A experience. "Corporate development activity is vital for the CFO," says Kaplan. "That includes mergers and acquisitions, strategic alliances, and divestitures - anything that enhances your organization along those lines." This year 65 percent of CFOs reported that they have played a leadership role in a merger or acquisition, up from 56 percent in the 2000 survey.

Stetter notes that outsourcing decisions, particularly those involving IT systems, are another area of growing responsibility for senior finance executives. "I think you're seeing a fundamental change happening where more and more large corporations are saying, 'We can't afford to invent and build everything ourselves,' " Stetter notes. "Companies simply don't have the expertise, or the process is too long to market, which means they're looking for off-the-shelf or outsourced solutions." In this year's survey, 47 percent of CFOs reported that they have played integral roles in selecting outsourcing providers, and this group earns an average of 17 percent more than CFOs who have not. In last year's survey, nearly as many CFOs (45 percent) were leaders in the outsourcer selection process; however, the 2000 group did not earn more, on average, than CFOs who did not have that experience. This suggests that the value of outsourcing decisions is increasing.

Sources frequently say that raising capital is highly valuable, and the study supports this point. The highest-paid CFOs in the survey identified raising capital as their number one priority during the next 12 months. And CFOs who have been key players in IPOs earn, on average, 42 percent more than CFOs without IPO experience. That number is the same as it was in the 2000 study. But this year's survey suggests that more CFOs are catching on to the benefits of having an IPO on their résumé; 25 percent reported IPO leadership experience, compared with only 18 percent last year. "That's one of the most important facets of my duties this year," says Jeffrey Solomon, director of operations who handles CFO duties for Facility Information Systems, a facility management information systems company in Camarillo, Calif. "I'm working on a new business plan that will hopefully afford us the opportunity to go out and raise more capital."

Thirty-two percent of CFOs manage the investor relations function at their company. They earn, on average, 34 percent more than CFOs who do not count investor relations among their direct reports. "If you are going to move to the CFO level," says Crusco, "you need to demonstrate your ability to communicate appropriately to Wall Street and to investors."

Judging from the current business headlines, there may be no better time than the present to sharpen investor relations skills. "Companies are missing earnings left and right," Crusco adds. "So to go through a near recession or a recession helps you build some necessary skills related to communication." In that way, bad news can be good news for opportunistic finance executives.

Methodology

More than 2,400 finance professionals completed online (55 percent) and hard copy (45 percent) versions of the 2001 Finance Executive Compensation Survey. Business Finance conducted the survey in conjunction with AOC, a financial staffing and recruiting firm based in Saddle Brook, N.J. Up2Right Consulting in Loveland, Colo., tabulated the data.

Respondents included CFOs (23 percent), finance directors/finance vice presidents/treasurers (25 percent), controllers (28 percent), finance managers (19 percent), and finance staff (5 percent) from more than 20 industries. Thirty-five percent of respondents work for companies with annual revenues of less than $50 million, 10 percent work for companies with revenues of $50 million to $99 million, 25 percent work for companies with revenues of $100 million to $499 million, 8 percent work for companies with revenues of $500 million to $999 million, and 22 percent work for organizations with revenues of $1 billion or more.

Geographically, survey participants were distributed among the Northeast (26 percent), Midwest (25 percent), Southeast (20 percent), West (16 percent), South (8 percent) and Rocky Mountain region (5 percent). An interactive database based on these results is available at www.bfmag.com/salary. There visitors can enter their qualifications and professional characteristics to determine how their compensation compares with that of survey respondents who have the same traits.

Industry Standards

The following rankings indicate the 10 industries that pay finance people the most, as calculated by the average of the compensation percentiles of all titles within the industry.

1.Utilities
2.Banking/Securities
3.Insurance
4.Real Estate
5.Telecommunications
6.Legal
7.Computer/Software Services
8.Manufacturing
9.Business Services
10.Transportation

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