At Top Companies, Pay Climbs for CFOs

A recent survey showed that CFOs at top U.S. companies reaped an average 17% raise in 2000, bringing their total average compensation to a record $2.77 million. The survey found that the increase was fueled largely by steep growth in stock option awards, which grew 25% to $1.41 million and now comprise more than half of total remuneration. The second highest area of growth was annual incentive pay, up 16% to $469,000. Salaries increased 9% to $507,000, and long-term incentives grew 2%, to $383,000.

“CFOs are being compensated more like entrepreneurs at a time of heightened market uncertainty and risk, rendering pay-for-performance a much rougher road to riches,” noted executive compensation consultants Pearl Meyer & Partners, which conducted the annual survey. “It will be years before their stock options can be exercised—and then only if the stock price has risen.”

Other Top Executives

The study showed that average total compensation for other top executives ranged from $10.89 million for CEOs to $1.76 million for top human resources executives. As with CFOs, salary decreased as a portion of total pay for controllers, treasurers, top tax executives, and top audit executives, bringing the at-risk pay of these executives to unprecedented levels. For controllers, treasurers, and top audit executives, long-term incentive pay also fell as a proportion of total compensation. Controllers, the most highly compensated of this group, earned an average $932,000 in total compensation in 2000, an 8% increase over 1999. Stock options, valued at $426,000, now average half of controllers’ total remuneration. Average salary increased 6% to $264,000 but represented only 28% of total remuneration, down slightly from 1999, while annual incentive increased 16% to $161,000. On a different note, long-term incentives were down 15%, to $81,0000. Treasurers’ pay is also heading upwards, averaging $927,000 in 2000, 16% more than 1999. Their compensation mix was similar to controllers: Stock option value was up 31%, averaging $403,000 and representing 43% of pay. Salary, which increased by 8% to $253,000, represented only 27% of pay, a slightly smaller proportion than in 1999.

Top tax executives were the only financial officers other than CFOs to see increases in all components of pay, including long-term incentive pay. They earned an average of $747,000 in total compensation in 2000—a 20% increase over 1999. Stock options, valued at $289,000, were 39% of pay, while salaries, averaging $238,000, were 32% of total pay compared to 35% last year.

The survey also showed that CEOs received eight-figure pay packages for the first time in 2000. Average total compensation increased 16% to $10.89 million, while stock options, with an average value of $6.45 million, represented a record 60% of total remuneration. Salary increased just 4% over 1999 levels to $1.13 million, representing a record low of 10% of total pay. Annual bonuses were up 20% to $2.01 million, while long-term incentive pay declined 16% to $1.30 million.

The survey’s results reflected the responses of 51 service and industrial companies with average annual revenues of $22 billion.

The Temp CFO Alternative

Temporary CFO service providers are booming in New York City’s Silicon Alley and elsewhere. Many start-up companies are now hiring CFOs on a retainer basis to manage a broad range of services once considered unsuitable for outsourcing: stock option plan organization, board of directors recruitment, bank loan and line of credit procurement, and IPO and related SEC filings navigation.

One provider of such services, New York-based MCG & Associates, was founded almost two years ago and has gradually expanded to offer outsourced human resources services. According to founder Joe Gitto, the average length of a CFO-on-retainer engagement is 18 to 24 months. In MCG’s case, the outsourcing firm usually helps the client recruit a full-time professional to bring the work inside.

Gitto notes that emerging dot-coms in particular tend to have ideas and start-up capital but not much more—and often lack any idea of how to run a business. Moreover, as some dot-coms falter they realize they sorely lacked managerial skills, turnaround and otherwise.

For financial professionals, a stint as CFO-for-hire may be an effective interim work option between positions, the means to finding their next position, or a long-term way of using their skills at the highest level without being tied to a single employer. As Gitto says, “This isn’t for everybody, but for many people and many companies, it works.”