CFO compensation set to rebound: U.S. survey

Earnings targets ‘much more likely’ to be achieved
||Last Updated: 07/14/2011

CFO total compensation in the United States is forecasted to show a substantial improvement in 2011, in both the private and public sector, according to a new survey.

During the recession, many companies shifted gears and increased the emphasis on financial performance targets in CFO annual bonus plans, rather than on non-financial ones. But as the economy started to improve, companies have begun to dial it down again for 2011, according to the 2011 CEO Incentives and Compensation Survey by Michal Matejka at Arizona State University in Tempe, Ariz.

For instance, the average bonus weight on financial targets in private companies with sales between US$50 million to US$99 million was 47 per cent in 2007, 65 per cent in 2009 and back down to 51 per cent in 2011. There was a similar trend in other sized companies, especially larger ones, found the survey of about 1,000 CEOs, CFOs and other executives.

Survey respondents said their companies’ 2011 earnings targets were much more likely to be achieved in this post-recession period. The average estimated probability of meeting an earnings target was 64 per cent in 2011, as compared to only 48 per cent in 2009. The estimated probability of meeting non-financial targets stayed largely unchanged at 64 per cent in 2011 and 68 per cent in 2009.

"Pegging much of a CFO's bonus to earnings targets during a deep recession is almost like making a swimmer race with cement boots on his feet," said Carol Scott, vice-president of business, industry and government at the American Institute of Certified Public Accountants (AICPA). "But an improved earnings outlook for 2011 and a better balancing of financial and nonfinancial performance targets should help boost bonuses and overall compensation of many CFOs."

Other key findings of the survey:

•Median CFO cash compensation declined by about seven per cent between 2008 and 2010.

•In 2011, CFOs of private companies had, on average, 54 per cent of their bonuses contingent on meeting financial performance, 14 per cent contingent on explicit non-financial targets, 27 per cent of their bonuses were awarded subjectively and five per cent in some other way.

•Operations targets, used by 16 per cent of private companies, were the most common of the non-financial targets used in CFO bonus plans.

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