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A Guide to Compensation, part II

Part II: CFO salaries compared and the views of headhunters

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While the crash of 2007 undoubtedly focused minds on executive performance and pay, it seems that senior finance roles remained relatively unscathed. This can be explained by the fact that demand for high-quality financial expertise tends to increase during times of economic strife.

In terms of total pay, one benchmark puts the average 2010 FTSE100 CFO salary at more than £1.8 million, an increase of almost 20 percent on the previous year.

The latest research

Big Four accounting firm KPMG, however, claims that FTSE100 finance directors were paid 7 percent more in 2009 than they did the previous year ,with an average compensation of £1.5 million. FTSE250 firms, it claims, saw the same percentage increase, but with average remuneration less than half that in the FTSE100, at £611,000.

The KPMG report also highlights the popularity of profit as the most common performance measure when rewarding CFOs with an annual bonus; earnings per share growth when measuring deferred bonuses and share option plans; and, total shareholder return, relative to a competitor basket, when looking at performance share plans.

“Despite the economic downturn, 2009 has seen very few companies making drastic changes to remuneration policies and strategies,” the study claims. “However, there are some interesting points to note in this year’s survey.”

They are:
•    The median rate of salary increases has frozen at around the 7 to 8 percent mark, with expectations for future growth to be slower.
•    While annual bonus potential remained at the same level, actual payouts declined – particularly in FTSE100 companies.
•    More than half FTSE350 companies now operate a deferred annual bonus plan, which are generally linked to TSR or EPS measures.
•    Share options are becoming less prevalent as a method of executive compensation.

The headhunters’ views

Mark freebairn, partner and head of the financial management practice, Odgers Berndtson

“There’s been pressure on the fixed element, some people have taken salary sacrifice or found that they’re not able to negotiate the substantial increases that they were able to negotiate three years ago. “But I have to say that good people will command good salaries in this market because the demands on finance directors have increased.

“At the same time, there are some big opportunities for people to come into quite chunky value-creation opportunities, and the opportunity to look at an LTIP grant early at a share price which is very reduced from what the market might expect the business to be doing in two or three years’ time.

“Buyout options have fallen, so while companies will still pay up front to buy people out of whatever it is they are fixed into, it’s less than it used to be. And the idea of guaranteeing bonuses is less common than it was three years ago.

 “We’ve just recruited someone who’s going in on an LTIP, which is over three years and is total shareholder return based against eight competitors in the FTSE250. They’ve got to be upper quartile for the payment to trigger.”

Suzzane Wood, managing director and head of the European financial officers’ practice, Russell Reynolds

“CFOs who are tied in financially might find it difficult to get bought out of their packages. I was on a big listed job where the remuneration committee found it hard to give the guy the package he needed to make the move, and we ended up not being able to close because of it.

“In the private-company sector, they might not have such committees, so [there] can be a bit more flexibility. They seem happier to pay cash than give equity and the cash packages are very generous. The lock-ins, however, are likely to be very long term.


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