Despite recent market turmoil and news of big corporate losses, finance professionals have nothing to lose. On the contrary, they’ve maneuvered to pocket bigger paychecks with the average executive recording a salary hike of 5 percent this year. Compare this with CEO pay growth of a mere 1.3 percent during the same period. “The analysis this year showed that the rate of growth of CFO pay was over three times faster than the rate of growth for CEOs, says David Chun, CEO Equilar, an executive compensation-benchmarking firm based in Redwood Shores, Calif. According to Chun the faster growth in CFO pay is mostly due to Sarbox compliance by the companies
Writing for his blog, Insights on Executive Compensation Disclosure Trends, David Chun, says that with adoption of Sarbanes-Oxley, finance executives have greater responsibilities to shoulder than ever before and this could be one of the primary reason behind the increase in CFO pay. “The glass-half-full view would be that CFOs, with the adoption of Sarbanes-Oxley, have much greater responsibilities than ever before. As a result, it’s much harder to recruit CFOs and, therefore, you need to pay them more,” he feels. Chun is also of the opinion that with this phenomenon in place CFOs can gear up for good times ahead.
A recent study of about 313 of the S&P 500 companies released last month by Equilar, revealed the growing disparity in the c-suite salary hikes. Equilar, which explored compensation trends for chief financial officers and non-employee directors at leading public companies, found that pay levels for both CFOs and directors climbed faster in 2007 than CEO compensation.
From 2006 to 2007, median compensation for S&P 500 CFOs in place for at least two years increased by 5.2 percent, rising to $2,894,275. In 2006, median pay for the same group of executives was $2,752,027, despite a 3.4 percent decline in median bonus payouts for finance chiefs. Although the prevalence of CFO option awards declined from 2006 to 2007, the median value of option awards increased by 7.0 percent. Median stock award values also grew by 16.1 percent, the study said.
Yet another survey by FEI (Financial Executives International) the association for CFOs and other finance executives, based in Florham Park, NJ, also found that the CFO at both public and private companies fared even better, with an average salary increase of 7 percent.
Interestingly, a recent study from The Corporate Library, an executive compensation watchdog, also revealed a similar trend. “The reasons for increased director pay are simple: they have to do more. Dealing with the onerous Sarbanes Oxley Act and the entire risk-sensitive atmosphere wrought with shareholder and customer lawsuits means that directors are working harder. The extra labor and the nasty milieu also mean that good directors are harder to find,” a report published with Bnet said.
Contrary to Chun’s view, most financial pundits blame the new SEC disclosure rules for the increasing CFO pay. Quoting cynics, Chun says: “Cynics will argue that the required disclosure of CFO pay is itself causing the ratcheting-up of pay. CFOs who now know what their counterparts are making at other public companies may experience increased pay envy, or may believe that the disclosed pay information of their peers is only the pay floor and that actual pay should only go up from there,” said Chun in his blog commentary.
“Is this an unintended consequence of greater disclosure under the new SEC compensation disclosure rules? It’s most likely a combination of the two factors (Sarbox and the new SEC disclosure requirements) and others that I’m not even thinking of,” quips Chun.