CFOs had a record breaking year in 2021 in terms of increased salary. A recent Compensation Advisory Partners (CAP) Pay Trends report highlighted the statistics.
The CAP study collected data from 130 companies with median revenue of $14 billion based on the fiscal year 2021. The study found that 62% of companies increased their CFO’s base pay, with the median increase of 4%.
In addition to salary increases there was also a large increase in bonuses and long-term incentive payouts for CFOs. On average, CFOs saw a 17%, 10-year high increase in total compensation. This big increase was driven mostly by large increases in variable incentives such as annual incentive payouts and long term incentive awards.
Last year “was a unique year with strong financial performance that supported higher pay, combined with lower payouts in 2020 due to the pandemic uncertainty that contributed to much higher rates of increase than we’ve seen in the last 10 years,” said Kelly Malafis, a founding partner at CAP. “We expect 2022 pay levels to stabilize and continue the rate of increases we saw in 2021.”
Due to the increased culture of switching jobs more often and the fact that this usually comes with a large salary increase, CFOs in particular are looking for increased incentives in order to stick around at their current companies.
The CAP survey found that about 75% of CFOs had a higher bonus payout in 2021 than the year before. The bonuses were credited largely to operating income numbers as companies that raised their operating income paid bonuses approximately 43% higher for CFOs than they did a year ago.
However, the increases weren’t exclusive to finance executives as everyone in the C-suite saw increased bonuses. Both CEOs and CFOs got a 34% median increase in payouts.
“Salary is an important factor, as it is the most tangible for the role, but at the most senior executive levels, we often see an emphasis on long-term incentives, primarily in the form of equity,” Malafis said. “Long-term incentives align with shareholder value creation over time and are much more leveraged than a fixed salary.”
The fight for talent
Although a big reason for increasing CFO salaries is due to high inflation and the increased demands that are expected of CFOs, another important reason that is impossible to ignore is the finance talent shortage.
This puts small companies and startups at a big disadvantage, as it is very difficult to compete with big companies’ payment packages and attractive selling points in the tight job market.
However, small companies and startups can attract talent in 3 different ways:
1) Incentives- Providing incentives to potential CFOs by putting the potential earnings in their own hands can help not only attract CFOs but also encourage them to stay and be more involved. When a company has limited cash, it “can offer equity that vests over time which can be very valuable as a start-up’s value proposition becomes more tangible.”
“Our study shows that compensation programs structured to reward for performance, and are leveraged based on performance, are very attractive when company financial and stock price performance are strong,” Malafis said. “To that end, companies looking to attract executive talent that is incentivized to drive sustainable performance over multiple years can design a pay program that rewards for that performance.”
2) Using tools that allow CFOs to create more value- Another way to attract CFO talent without the ability to compete with large companies’ salaries is by supporting CFOs in bringing more value to the company. One of the C-suite’s biggest hindrances is manual work and inefficient processes, and CFOs often suffer the most from this. Companies that implement tools that free up time for CFOs and allow them to focus more on leadership and strategic value will attract highly motivated CFOs.
3) Room for additional contributions- Although most companies want the most out of their high profile employees, some still have the old school mentality of staying within their job description. Now more than ever, CFOs are needed not only in the finance department, but also as strategic decision makers, storytellers, and as the connection between finance and the rest of the company. Although salary and benefits are important, today’s work culture places a large emphasis on growth and feelings of contribution, especially from management positions. Companies that advertise and cater to this kind of culture will have a far easier time in recruiting potential CFOs – even without the numbers offered by large corporations.
