More financial executives are getting raises – and the raises are bigger

Most US financial executives got a pay bump during the past year, and their raises got a little bigger—a sign that companies are more bullish about the economy, new research on executive compensation indicates.

Seventy-four per cent of financial executives said they received salary increases in the past year, according to the 2012 Financial Executives Compensation Survey, which was released by the Financial Executives Research Foundation and Grant Thornton. That’s up from 66% reporting raises in the 2011 survey and 43% in the 2010 edition.

The estimated average salary increase was 4%, up from 3% in the 2011 report. Public companies awarded higher increases than private companies, the research shows.

The sixth annual survey reports on salaries, bonuses, long-term incentives and retirement benefits of CFOs, corporate controllers, treasurers and other financial executives in the US among public and private companies. Nearly half of the 714 respondents, who were surveyed via email between December and January, were CFOs.

“Executive compensation programmes across all types of organisations continue to evolve in response to factors such as the economic and political climate, increased scrutiny by shareholders and the media, and compliance-driven increases in programme transparency,” Marie Hollein, CEO of Financial Executives International, said in a press release. “The findings from this year’s survey are reflective of slight improvements in the economy, resulting in a loosening in compensation restraints.”

Among the findings in the 2012 report:

• The average base salary for public company corporate CFOs was $286,500, up 3.3% from 2011. After adding cash-based, long-term incentive awards, the average total cash compensation for public company CFOs was $459,301.

• The average base salary for private company corporate CFOs was $197,400, down 4.6% from 2011. After adding cash-based, long-term incentive awards, the average total cash compensation for private company CFOs was $277,979.

• Only 26% of all financial executives received long-term cash incentives. Nearly half (48%) of those executives reported that it came as some form of stock-based incentive compensation.

• Common performance measurements used to determine the incentives included company goals and objectives (41%). The use of earnings before interest, taxes, depreciation and amortisation (EBITDA) was 33%, up from 20% in 2011.

“Pressure is increasing on officer performance management processes and performance tied to pay,” Ken Cameron, a director in Grant Thornton’s compensation and benefits consulting practice, said in a press release. “In response, organisations are making programmatic changes such as increasing the use of performance shares and applying more rigourous incentive goal-setting methodologies.”

Executives turned off by complexity

At the same time, such methods might be a turn-off to some executives. In many cases, executives would rather be paid a smaller salary in a more predictable and less complex form, according to the Psychology of Incentives, a study by PwC and the London School of Economics and Political Science.

More of the 1,100 respondents (51% vs. 27%) favoured a cash plan based on profit targets that they understand over a more ambiguous plan based on their company’s share price relative to other companies.
 
“Complex pay plans are a motivation killer,” Tom Gosling, head of PwC’s reward practice, said in a press release. “The more complex the pay, the lower the value in executives’ eyes. … We need to simplify pay significantly. We’ve tried to put too much of the package into complex incentives that executives don’t value, and this is leading to volatility of pay-outs and unintended consequences.

“If we had simpler, less volatile pay plans, then most executives would be happy to be paid less.”

Not just rising in the US

US financial professionals aren’t the only ones getting pay bumps, according to Robert Half International, a staffing firm that tracks salary ranges for financial executives globally. Here’s what the company found between 2011 and 2012:

• In the UK, CFO starting salary increases were modest, at 3.3% for large companies and 2.6% for smaller ones. Financial controllers at large companies saw wages increase 4.1%, and pay for financial planners and analysis managers rose 4.8%. Those were the only two positions in the UK to see starting-salary growth greater than 4%.

• In China, many qualified workers have the luxury of multiple job offers. In Shanghai, China’s largest city, the starting salary for a financial analyst increased 13%—one of five job categories with double-digit growth. Starting pay for CFOs at smaller companies rose 9%.

• In Singapore, across-the-board increases for financial professionals were the norm. Of 19 categories of financial work, 14 had starting-pay increases of 6% or more. CFOs’ starting salary range increased 8%, and financial analysts’ starting range rose 10%.

• In pockets of Australia, financial accountants are in high demand. In the cities of Perth and Melbourne, starting pay at large companies rose 9.3% and 8.6%, respectively. In Sydney, the starting-salary range for large-company CFOs increased 6.1%.

• In Canada, CFOs had sparse pay increases—1.8% or lower, no matter the size of the company. Entry-level accountants were in demand, especially at midsize companies. Their starting pay rose 5.1%.

• In Japan and New Zealand, two countries crippled by natural disasters in 2011, pay increases are minimal or nonexistent. In New Zealand, several categories experienced drops in starting pay, though 58% of finance executives surveyed expect salaries to increase by the end of 2012.

Related CGMA Magazine content:

• “Embrace your inner negotiator”: Being a good negotiator is a differentiating factor that can help with career advancement. For certain positions, it’s the key to survival. Negotiating for career advancement may be the hardest challenge of all.

• “CFOs report difficulty finding accounting and finance talent”: Finding qualified accounting and finance professionals is becoming increasingly difficult for executives. Staffing plans in accounting and finance are stabilising after a busy end to 2011 and start to 2012 in terms of expected hiring and cuts.

—Jack Hagel (jhagel@aicpa.org) is the editorial director of CGMA Magazine. Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.