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Executive Pay Structure Gives CFO Bigger Pay Raises than CEOs

Are CFOs worth more than their CEO bosses?

The Wall Street Journal reports on a trend to make chief financial officers’ compensation more equity-based, which largely explains a bigger increase in CFOs’ remuneration. As a result of record levels in stock markets, chief financial officers’ compensation grew more rapidly than the median pay of chief executive officers at large companies.

In comparing the compensation, the Journal reported that CFOs in the S&P 500 received a median pay increase of 13.9%, and that the median compensation package in the group stood at $3.8 million, for a 12-month period ending May 29, 2015. Using a different source to tally the same figures for large companies chief executives, the Journal reported that the CEOs median compensation rose 13.5% to $13.6 million.

The contribution of the stock market to CFOs’ bigger rise in compensation is made clear by data that shows CEOs’ salaries and bonuses grew 4.1%, outpacing CFOs’ increase of 2.7%.

Conversely, stock grants grew by a median of 9.7% to $1.4 million in 2014 from $1.2 in the previous year; and option awards grew 3.8% to a median of $660,490 for the 300 executives in the group who received them, as compared to $636,597 in 2013, the Journal reported.

In addition to the equity markets factor, industry insiders said there are corporate cultural trends at work.

Steven Hall, president of executive compensation consulting firm Steven Hall & Partners, explained the slow rise in CFOs’ base salaries resulted from a lack of desire to recruit chief financial officers. There is increased retention of CFOs, and more are getting their job through promotion, he told the Journal.

Moreover, Bryan Proctor, leader of the financial officer practice at Korn/Ferry International, explained that the trend is to incentivize CFOs by increasingly linking their compensation to equity grants. Compensation committees, he told the Journal, “want CFOs who are owners, not hired guns.”

In any event, CFOs at public companies receive higher salaries than their peers at private companies, according to data by CFO Search, a finance executive search firm. According to its website, at public companies with assets of $10 million to $40 million, the average salary of CFOs ranges between $142,100 to 258,500, compared to a range of $133,200 to $246,700 at private companies of similar size.

Its findings show that equity grants at large public companies can be more than $500 million, and that CFOs generally received an initial first year grant and the remainder over a period of several years. Even private companies, offer some form of equity stake to the chief financial officers. The bonus of a CFO can be as much 30% to 60% of the base salary.