July 18, 2023
CFO Pay: Growing at Slower Rate in “Mixed Performance” Environment
This 6-page memo from Compensation Advisory Partners CAP’s looks at pay practices for CFOs, based on 2022 compensation actions among 175 companies with median revenue of $13 billion. The memo also looks at how CFO compensation compares to CEO compensation. Here are a few key takeaways:
– Base Salary: More CFOs and CEOs received increases in 2022 compared to 2021, with the median increase above 2021 increases
– LTI Awards: LTI awards were up in 2022, though not by as much as in 2021, which may reflect continued strong economic conditions at the time of grants in early 2022
– Bonuses: Weaker financial performance in 2022, compared to strong performance in 2021, resulted in lower bonus payouts
– Pay Mix: The mix of equity vehicles remained roughly consistent with prior year practices, as companies have implemented plans emphasizing performance- and time-based stock, partially driven by proxy advisor pressure for long-term incentives to be comprised of at least 50% at-risk performance-based pay
– Total Direct Compensation: TDC increased in 2022, driven by higher salaries and long-term incentive awards. Median TDC increased approximately 5% for CFOs and and 2% for CEOs
CAP offers this summary & prediction:
2022 was a mixed performance year, with operating profit up approximately 7% at median while 2022 TSR at median was -9.2%. Actual bonus payouts declined from all-time highs in 2021, but still remain above target, generally reflecting financial performance improvement following a very strong performance year in 2021. Actual total direct compensation was up slightly though grew at a slower rate than we have seen on average. Target total compensation continues to grow incrementally each year, with higher salaries and target incentives awarded.
2023 continues to be a dynamic environment due to uncertainty around interest rates, equity market performance and global economic growth. For 2023, we expect to see pay changes in the single digits as Compensation Committees and management teams consider performance and retention when making their pay decisions.
– Liz Dunshee