CFOs Have More Responsibility, But Reaping Rewards
Corporate financial management has become one of the most influential positions in the company. Technological capacity, international developments, economic turbulence – even weather – affect the risks facing today’s finance executives. The role of the CFO has evolved from a transactional accountant to a key strategic business partner.
Due to the heightened status, the likelihood of an enterprise CFO becoming a CEO is growing. A survey conducted by New York-based Compensation Advisory Partners shows the percentage of CEO hires with CFO experience in S&P 500/Fortune 500 companies has risen from roughly 11% in 2000 to 25% in 2010.
The change in status has been accompanied by an increase in compensation. According to the Wall Street Journal, median pay for CFOs of S&P 500 companies surged 19% to $2.9 million per year. Pay varied from $600,000 to $60 million. The report states that the growth in pay at least partly reflected the increased clout and responsibilities, as well as moves by some companies to combine financial responsibilities with others, such as IT.
According to proxy filings for 2010 from 55 public companies with revenues from $1 to $150 billion, just over 78% of CFOs received a pay raise. That finding compares to only 54.5% of CEOs got a pay hike. In 2009, roughly 69% of CFOs saw a pay increase.
Compensation research firm Equilar completed a study earlier this year of 386 companies with finance chiefs in place for at least two years. It showed that the median compensation rose 20% from 2009 to 2010. The median total compensation package was nearly $925,000. Bonuses grew nearly at a rate of nearly 48%.
Long-term incentives – specifically stock options and performance-based programs – continue to be the most prevalent compensation benefits, according to Equilar. But the percentage of compensation declined for incentives. For example, stock option pay dipped to 31% from 41% in 2008.
Because financial planning is now a critical component of the CFOs role, understanding the evolving business impacts, such as supply chain management or energy consumption, is important in creating value for shareholders. In many cases, IT and media management fall under the CFO’s jurisdiction. In addition, the CEO often relies on the CFO to guide company direction and be a trusted advisor. Eighty-eight of 164 CFOs reported in a McKinsey study that the CEO expects a CFO to be a more active participant in shaping the strategy of their company. And nearly half were expected to challenge the existing strategy.
