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Article | Executive Pay Matters

CFO pay increases fall but still outpace CEOs

Governance Advisory Services |Executive Compensation

By Michael Bowie and Jang Han | January 8, 2020

Pay for the U.S.’s top financial officers continued to outpace the rate of increase for CEOs over the past year, but the rate of increase fell relative to the increases CFOs received in the prior year.

While S&P 1500 Chief Executive Officers' (CEOs’) total target pay increased 5.5% in the most recent year, Chief Financial Officers (CFOs) among the same group received a median increase in total pay just over one percentage point higher, owing in part to the growing portfolio of responsibilities taken on by executives in these roles.

Target total pay for S&P 1500 CFOs grew 6.6% increase at the median, down from the 7.7% median increase we observed last year. Similarly, the rate of increase in total earned pay at the median for S&P 1500 CFOs also lagged behind 2017, falling from 18.5% in 2017 to 14.1% in 2018. While we observed slightly slower growth in both target and earned total pay for S&P 1500 CFOs in the most recent fiscal year, our analysis revealed differences in the driving forces behind these trends.

Target bonus levels for S&P 1500 CFOs grew at a higher rate than in 2017, with S&P 400 CFOs seeing the largest jump from a 3.9% uptick in 2017 to a 5% increase in 2018. Further, one-fifth of companies (20%) made defined increases to their annual target bonus percentages. Conversely, target long-term incentive (LTI) values grew at a slower rate in 2018, rising 7.7% compared with an 8.6% increase observed in the prior year.

On the other hand, bonuses for S&P 1500 CFOs were earned at a lower rate in 2018, rising 4.8% in 2018 compared to a 5.5% clip the year prior. The average bonus payout relative to target remained steady at 112% of target, however the number of S&P 1500 CFOs that received an above-target bonus fell from 64% in 2017 to 62% in 2018. Earned LTI values saw a significant decline in year-over-year growth, dropping from a 35.2% increase in 2017 to 20.8% in 2018. A volatile stock market in 2018 compared to the steady price growth observed in 2017 was likely a contributing factor; however, the drop in the rate of increase of earned LTI in 2018 was also due to fewer stock options being exercised, as well as fewer CFOs exercising their stock options.

These findings were identified by Willis Towers Watson’s Global Executive Compensation Analysis Team (GECAT) in its annual review of S&P 1500 CFO pay. Other key findings highlighting the drivers of target and earned pay include:

  • Salary: Base salaries for S&P 1500 CFOs increased moderately in 2018, rising 3.3% in each of the three primary indices (S&P 500, S&P 400, S&P 600). Nearly one in ten (9%) S&P 500 CFOs receive a salary of at least $1 million, up from 7% in 2017.
  • Annual bonuses: Bonuses made up 22% of a S&P 1500 CFO’s targeted pay mix, an uptick from 21% in 2017. Nearly one-quarter (23%) of S&P 400 CFOs received a defined increase to their target bonus percentage, the most of any S&P sub-index. Over one-quarter (26%) of S&P 1500 CFOs received just a modest shift in bonus payout level relative to target in 2018, swinging +/- 10% of target compared to the previous year.
  • LTI pay: Comprising over half (51%) of their total pay mix, LTI compensation remained the primary component of overall pay programs for S&P 1500 CFOs. Performance-based LTI awards continued to be a fixture of LTI programs, as 77% of S&P 1500 CFOs received this form of LTI grant, slightly more than the 75% of CFOs that received a time-vested restricted stock grant. These two forms of LTI were issued considerably more than stock options, which were granted to just 39% of S&P 1500 CFOs in 2018.

For more details on the survey findings, please download our report.

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