Total direct compensation for CFOs at companies in the S&P 500 rose 7% in 2013 to a median US$3,131,000, according to Mercer.
Strong corporate profitability accompanied a median 2% increase in total direct compensation for the S&P 500 CFOs in 2012, and the 2013 data reflect stronger pay in light of relatively similar year-over-year corporate performance.
Revenues grew 3% in 2012 and an additional 3% in 2013, and profitability measured by EBIT, improved 5% in 2013 (compared to 4% in 2012).
Compensation mix has remained stable from 2011 to 2013, the period studied in Mercer’s analysis. Each year, 22% was paid in base salary and another 21% in short-term incentives with the remaining 58% of total direct compensation granted in long-term incentives.
For the largest companies in the sample – the S&P 100 – the pay portfolio was leveraged substantially more, with base salary representing 17% of total direct compensation in 2013 (16% in 2011 and 2012) and long-term incentives making up 64% in 2013 (66% and 65% in 2011 and 2012, respectively).
“The high variable leverage is expected to continue,” said Stephen Mork, Partner with Mercer’s Executive Rewards practice. “Pressure from shareholder advisory services and advocacy groups, as well as repercussions from say-on-pay votes and stockholders’ increasing access to pay information, combine to ensure that variable pay continues to be a key driver at the executive level. And this is not limited to the US -- similar pressures in attempts to manage executive compensation are seen globally.”
Annual cash compensation increased 6% to a median $1,221,000 in 2013. During that period, base salaries rose 3% to a median $600,000 and short-term incentive payouts grew 6% to a median $651,000.
“The largest companies tend to set the trends,” said Ted Jarvis, Mercer’s Global Director of Data, Research and Publications. “Accordingly, targets for the smaller companies should continue to rise, however it’s less clear if the larger companies are likely to increase their targets much further.”
Performance shares and option usage
The grant date present value of long-term incentives for CFOs grew 4% in 2013 to a median $1,835,000. The prevalence of performance shares or performance cash awards continued rising, offered to 45% of all CFOs in the S&P 500.
Prevalence was even higher in the S&P 100 (47%) indicating that the largest companies may be setting the trend for industry as a whole. In 2011, performance shares or units were granted to 37% of the S&P 500 (42% in 2012).
The increase in performance awards was offset by a decline in option grants from 34% in 2011 to 28% in 2012 and 25% in 2013.
CFO vs. CEO pay
At median, CFOs received 34% of the compensation awarded to CEOs in 2013 – roughly unchanged from 2012 and only slightly above 33% in 2011.
“Although the CFO frequently is the second- or third-highest paid executive in the corporate hierarchy, this differential is historically fairly stable since 2006, when changes to the proxy rules facilitated valid side-by-side comparisons of CEO and CFO pay,” says Jarvis.
The lower compensation is not the only way CFO compensation differs from that provided to CEOs. “CFO compensation is not CEO compensation writ small. The components are the same, but the base-to-variable leverage is considerably lower,” said Jarvis.
Whereas base salaries comprised 14% of CEO pay in 2013, it was 22% of CFO pay. The difference was entirely in the form of long-term incentives which accounted for 67% of a CEO’s pay in 2013 but only 58% for a comparable CFO.