Measuring Up
By Jay Sherman© Treasury & Risk Management. May 2001.
Talk about an incentive to get your boss’s job. Chief financial officers at large public companies earned three times the total compensation of treasurers and controllers in 2000, the third year running in which the gap has widened, according to Pearl Meyer & Partners, a New York City executive compensation consulting firm.
“In general, you are seeing an ever-widening spread between the top of the house and below,” says Steven Hall, a managing director at Pearl Meyer. “The CFO job has changed. Even more these days they are out in front on the firing line. They are not sitting [alone] with a green eyeshade anymore.”
The Numbers
Average total remuneration for a CFO—meaning salary, cash bonus, long-term cash and stock incentives and option grants—climbed to nearly $2.77 million last year, up 17% from $2.37 million in 1999, according to Pearl Meyer’s analysis of proxy statements from 51 companies with average revenues of $22 billion.
Treasurers at the same companies enjoyed an average 16% jump in pay over the previous year to $927,000 from $797,000. Controllers saw their remuneration climb 8% to $932,000 from $860,000 in 1999, according to the analysis.
Given today’s sagging markets, the 2000 compensation mix may be the last one for a while in which stock options weigh so heavily. Just over half of CFOs’ total compensation (51%) last year came from option grants. Options comprised 43% of treasurers’ compensation and 46% of controllers’ pay, according to Pearl Meyer. (The company uses a standard Black-Scholes analysis with an imputed value of one-third of the grant to calculate option values.)
“I anticipate you’ll see a shift in two areas, [with] more cash compensation through annual incentives [or bonuses] based on performance and more use of long-term incentives,” says Rhoda Edelman, a managing director at Pearl Meyer. The long-term incentives will most often be tied to meeting three- to five-year business goals and will be paid in cash and/or restricted stock, she says.
“A year ago you had low bases and high equity potential,” agrees Russell Boyle, head of the U.S. CFO practice at Egon Zehnder International in New York. “Now, you are looking at the exact opposite of the equation.”
Adds Allen Geller, a recruiter who specializes in international treasury positions at Raines International in New York: “Especially with smaller companies, the fact is a lot of candidates are saying, ‘I don’t want equity. I want money.’”
When options are taken out of the picture, treasurers fared almost as well as their bosses in terms of salary increases in 2000. Base salary raises for CFOs averaged 9% in 2000, up from 7% in 1999. Treasurers’ wages rose 8% last year, up from 3% in 1999. Controllers enjoyed a 6% jump in salary in 2000, after suffering a modest 2% raise in 1999, according to Pearl Meyer.
To be sure, the Pearl Meyer data represent just a slice of the compensation picture, and they are heavily influenced by the size of the Fortune 250 companies in its review. The firm would not reveal the names of the companies it surveyed, but a quick look at some proxy statements issued over the past three months has some eye-opening numbers on life at the finance top. As the table on the next page shows, Lucent Technologies CFO Deborah Hopkins, who was lured away from Boeing, pulled in more than $9.5 million for her nine months at the troubled tech company. The numbers get even higher for CFOs who cashed in past stock option awards. Cisco Systems CFO Larry Carter, for example, earned $49.4 million in 2000 compensation (including $48.2 million of options.)
At smaller companies, average compensation packages are considerably lower. Robert Half International, which recruits for senior- and lower-level positions at companies outside the Fortune 500, said the CFOs and treasurers it placed in 2000 averaged between $251,000 and $335,000 in base salary at companies with revenues of at least $500 million. (The Half numbers are based on placements made through its 300 U.S. offices and are not broken down between CFOs and treasurers.)
Strong Skills in Hard Times
Vice presidents of finance at companies with revenues of $500 million or more earned base salaries between $198,000 and $316,000 in 2000, while directors of finance at companies of a similar size earned between $131,000 and $202,000, Half reports. Managers of finance, budget and cost analysis at companies with revenues of $250 million or more earned base salaries between $57,000 and $73,000 last year. Credit managers’ average starting base salary was $48,000 to $69,000.
Despite the dolorous state of the economy and the overwhelming number of companies missing their profit targets, income for senior financial executives is expected to continue rising at a multiple of inflation, experts say.
That’s because the times call for financial executives with strong skills in capital preservation and capital raising—skills that are at a premium.
“Financial people are now benefiting from something [beyond] supply-and-demand issues,” says Wayne Mello, executive director of the permanent placement services division of Robert Half. “The economy might be going through some uncertain times, but who becomes more important in a company structure during these uncertain times? It’s the financial officers. No matter how a company is doing, it still needs a scorekeeper. The worse [companies] do, the more they need these people.”
Gary Kaplan, who runs an eponymous recruiting firm in Pasadena, Calif., agrees, adding that finance pros with strong leadership qualities, finance finesse and broad strategic perspective can write their own paychecks in hard times.
“The CEO these days is looking for a partner, someone who is a business person and who just happens to specialize in finance,” says Kaplan. “The women and men who fill that bill will command top salaries, and will be viewed as candidates for CEO.”
Treasurers’ New Role
As CFOs assume greater responsibilities for broad strategic functions and business areas, treasurers are being asked to pick up some of their bosses’ responsibilities. Microsoft Corp. last year created the post of deputy CFO for its former treasurer, Jean-Francois Heitz. He is responsible for many of the day-to-day finance and coordination functions of CFO John Connors, who is increasingly tied up in top-level management sessions and who recently assumed responsibility for the company’s internal technology and manufacturing/licensing operations.
Thus, job descriptions are expanding for treasurers, too. “The ideal [treasurer] candidates are fairly broad and externally focused,” says Jennifer Essex, a principal who specializes in treasury searches at Korn/Ferry International’s Chicago office.
So how should treasurers, controllers and others position themselves to move up to the coveted CFO spots? There are no secret formulas, except for the fact that performance in the end wins the day.
“It’s what you do on the job, going through the rigors of taking a company public, making sure that all the business units add up to the total company,” says Egon Zehnder’s Boyle. “It’s gaining that business perspective that is very comforting to boards of directors.”
