Thomas Thompson Jr., Financial Executives Research Foundation, Inc., and Ken Cameron, Grant Thornton LLP
May 30, 2014
Uptick in financial executive compensation hints at turning point
[Download the PDF of the entire survey report.]
The 2014 Financial Executive Compensation Survey of public and private company financial executives shows glimpses of an improving economy. Based on the survey, we believe that total compensation improvements this year — salaries, incentives and benefits — may indicate a turning point. Financial executives reported higher average salary increases than the average 3% increase in the business marketplace.
The growth rate in finance/accounting employees is also improving: At private companies with 250 to 499 employees, the number of finance/accounting employees increased to 8% in 2014 from 4% in 2013, and those with 500 to 999 employees reported an increase in finance/accounting employees to 4% from 2% a year ago. “Organizations have been hesitant to hire, and they’ve been asking employees to do more with less and hiring contractors,” says Ken Troy, director in Grant Thornton LLP’s Compensation and Benefits Consulting practice in Los Angeles. “Employees were happy to have a job and understood the need for benefit cuts and other belt-tightening. But now that the economy is improving, organizations are growing and beginning to staff up to the levels before the downturn, in part to retain people who have been working so hard.”
Private company salaries inching up
The average salary increase for financial executives at private companies was 3.3% in 2014, an increase from 3.1% in 2013. On the public company side, the financial executive rate of increase dipped slightly, to 3.4% from 3.5% a year ago. These numbers are slightly higher than overall salary increases in the marketplace, which are trending at 3%. The following charts show average base salaries by title for public and private companies, and a historical view of average annual salary increases for all job titles surveyed over five years.
Hiring is slowly increasing
Hiring is another indicator of a business’s financial health. Respondents reported permanent financial staff levels that show a modest increase in 2014, with mid-sized to larger firms reporting the largest staffing increases. The compensation and hiring improvements represent a modest trend thus far, but they support the need to take a fresh look at your company’s total employee compensation. As the employment market shifts and companies continue to hire more full-time equivalents on staff, rather than relying on part-timers and contractors, salaries and other benefits will continue to increase and will play a bigger role in recruiting and retaining top financial executives.
“Employers have to be confident in the compensation package they’re delivering to their key contributors,” Troy says. “There’s more to plan design than salary and bonuses. Benefits, perquisites, long-term incentives and employment contracts are important parts of an effective total compensation package and will be even more important in an increasingly competitive employment market.”
Approximately two-thirds (67%) of respondents indicated they have a target-level bonus, which averaged 35% across all positions. Of that group, 63% reported that the bonus did not meet or exceed 90% of their target performance level. For respondents who reported receiving an annual bonus, the average was $76,871.
More than three-quarters (77%) of both public and private company respondents have a defined contribution plan. Additionally, less than a quarter of respondents’ companies have a defined benefit plan. For those companies that do still offer a defined benefit plan, approximately half restrict new entrants or have frozen benefit accruals. For those companies that cover total health care costs, the average percentage paid by the employer was 71%.
Of the 81% of executives who reported receiving one or more perquisites, the most popular was cellphone, cellphone allowance or cellphone reimbursement (85%). The majority (90%) of those receiving perquisites reported that those perquisites have not been reduced in the past year, and the percentage of executives who received one or more perquisites is consistent with results in prior years.
Another important part of the compensation plan design for financial executives is long-term incentives that deliver compensation through cash and/or company stock:
- Cash incentives — Eligibility for receiving long-term cash incentives decreased to 20% from last year’s 22%.
- Stock incentives — Nearly half (48%) receive some form of stock-based incentive compensation, with stock options and restricted stock/stock units (21%) cited the most.
- Payout packages — For executives who are eligible for long-term incentives (cash, stock-based or other) and whose awards have a performance or market condition for vesting, the most common measures for determining payouts were company strategic goals/objectives (15%); followed by more-specific company financial performance measures such as EBITDA (10%); and individual goals and objectives (6%).
The majority of respondents (65%) said they are not covered by an employment contract. For those who are, the most common element is change-in-control severance (59%) followed by severance (unrelated to a change-in-control).
Public vs. private company responses
This year’s survey included responses from public (131 respondents) and private (323 respondents) companies. In general, we attempted to separate public and private company responses to discourage direct comparisons of respondent data because of variations such as the much larger size and revenues of the public respondents and the much higher number of private company respondents.
A portrait of the top financial jobs
The following is a snapshot of the top three financial executive roles — CFO, corporate controller and VP of finance — for both public and private companies.
Survey snapshot: CFOs at a glance
- Average base salary: $273,100 Average annual bonus: $134,600
- Total compensation — including salary, bonus, long-term compensation and value of all benefits: $710,600
- Eligible to receive cash-based long-term incentives: 18%
- Eligible to receive stock-based long-term incentives: 76%
- Employment contracts prevalence: 64%
- Most popular public company CFO contract provision is severance, not change-in-control: 68%
- Eligible to participate in a defined benefit plan: 21%
- Have a master’s degree: 50%
- Years in current position: 6
- Average base salary: $215,200
- Average annual bonus: $79,800
- Total compensation — including salary, bonus, long-term compensation and value of all benefits: $500,300
- Eligible to receive cash-based long-term incentives: 24%
- Eligible to receive stock-based long-term incentives: 46%
- Employment contracts prevalence: 47%
- Most popular private company CFO contract provision is change-in-control severance: 72%
- Eligible to participate in a defined benefit plan: 19%
- Have a master’s degree: 56%
- Years in current position: 6
Survey snapshot: Corporate controllers at a glance
- Average base salary: $204,500
- Average annual bonus: $72,100
- Total compensation — including salary, bonus, long-term compensation and value of all benefits: $378,000
- Eligible to receive cash-based long-term incentives: 23%
- Eligible to receive stock-based long-term incentives: 86%
- Employment contracts prevalence: 54%
- Most popular public company corporate controller contract provision is change-in-control severance: 75%
- Eligible to participate in a defined benefit plan: 23%
- Have a master’s degree: 62%
- Years in current position: 7
- Average base salary: $129,200
- Average annual bonus: $24,900
- Total compensation — including salary, bonus, long-term compensation and value of all benefits: $191,000
- Eligible to receive cash-based long-term incentives: 12%
- Eligible to receive stock-based long-term incentives: 28%
- Employment contracts prevalence: 12%
- Most popular private company corporate controller contract provision is severance, not change-in-control: 33%
- Eligible to participate in a defined benefit plan: 12%
- Have a master’s degree: 56%
- Years in current position: 5
Survey snapshot: VPs of finance at a glance
- Average base salary: $236,300
- Average annual bonus: $82,900
- Total compensation — including salary, bonus, long-term compensation and value of all benefits: $434,500
- Eligible to receive stock-based long-term incentives: 80%
- Employment contracts prevalence: 40%
- Most popular public company VP of finance contract provision is severance, not change-in-control, based on number of months: 75%
- Eligible to participate in a defined benefit plan: 50%
- Have a master’s degree: 68%
- Years in current position: 4
- Average base salary: $166,700
- Average annual bonus: $30,600
- Total compensation — including salary, bonus, long-term compensation and value of all benefits: $258,600
- Eligible to receive stock-based long-term incentives: 41%
- Employment contracts prevalence: 9%
- Most popular private company VP of finance contract provision is severance, not change-in-control, based on number of months: 40%
- Eligible to participate in a defined benefit plan: 16%
- Have a master’s degree: 56%
- Years in current position: 6
Applying survey results
Trends like stronger hiring rates and increases in salaries and stock-based incentives could gain momentum over the next few years. Take a close look at your company’s compensation structure and assess if your most valued employees are being competitively compensated. If your company is well-positioned to attract, select and retain top financial executives, you will have a market advantage as the improved economy takes a firmer hold and expands, perhaps faster than many expect. After all, strong financial executives are much easier to retain than hire and train.
Survey methodology and demographics
The data used to compile this research report was collected from responses received from a survey sent via email to active Financial Executives International (FEI) members from November 2013 through January 2014. An active or executive FEI member is defined as an individual currently holding a position as a financial executive at an organization. The 31-question survey garnered 490 member responses. Note that totals throughout the report may vary, because not every respondent answered every question.
Continuing the trend in recent surveys, the percentage of responses from private companies increased slightly, to 66% in 2014 from 65% in 2013, while those from public companies dipped slightly, to 27% in 2014 from 29% in 2013. Almost three-quarters (71%) of responses came from companies with annual revenues of less than $499 million. As in previous years, the average revenue size for public company participants exceeded that of private company participants.
Consistent with the previous six years, the most heavily represented industry was manufacturing (13% discrete manufacturing and 12% process manufacturing). Similar to the past five years, the most responses came from members employed by companies with corporate headquarters in either Texas (17%) or California (13%).
The majority of respondents (56%) reported a master’s degree as the highest level of education completed. In addition, most respondents (83%) were male. As was the case in last year’s survey, the average executive has held his or her current position for at least five years.
It’s important to note that the survey was completed by senior financial executives rather than by HR or executive search firm executives, and does not represent an empirical compensation analysis. Rather, the survey reflects the views of FEI members actually working in the jobs described.
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