Financial Executive Compensation Survey 2014

Transcription

1 Financial Executive Compensation Survey 2014 Uptick in financial executive compensation hints at turning point an affiliate of financial executives internat

2 Contents 1 Introduction 2 Private company salaries inching up 3 Hiring is slowly increasing 4 Bonus payments 4 Benefits 5 Perquisites 6 Long-term incentives 7 Employment contracts 8 Public vs. private company responses 8 A portrait of the top financial jobs 14 Applying survey results 14 Survey methodology and demographics 16 About the authors Authors Thomas Thompson Jr. Senior associate, Research Financial Executives Research Foundation, Inc. Ken Cameron Director of Compensation and Benefits Consulting practice in Atlanta Southeast Region practice leader Grant Thornton LLP

3 Financial Executive Compensation Survey 2014 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 belttightening. 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. Financial executives reported HIGHER AVERAGE SALARY INCREASES than the average 3% increase in the business marketplace 1

4 Financial Executive Compensation Survey 2014 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 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. A snapshot of public and private company average base salaries Title Public Private CFO $273,100 $215,200 Corporate controller $204,500 $129,200 Vice president (VP) finance $236,300 $166,700 Director (finance, accounting) $166,400 $147,900 Chief accounting officer $276,300 $196,700 Treasurer $252,500 $258,800 Divisional/geographic/regional CFO $148,800 $139,000 Average annual salary increase for public and private company titles Most-recent increase Did not receive increase 28.9% 28.5% 26.8% 33.9% 57.2% 1% 1.5% 1.3% 1.2% 1.3% 1.2% 2% 10.8% 11.5% 9.2% 11.9% 4.9% 3% 24.5% 24.5% 24.1% 21.3% 13.5% 4% 6.4% 9% 8.1% 9% 6.1% 5% 9% 10.3% 11.7% 8% 5.4% 6% 2.3% 1.3% 3.7% 2.1% 1.5% 7% 2.6% 1.6% 3.4% 1.6% 0.9% 8% 3.6% 2.2% 1.4% 1.4% 1.4% 9% 0.5% 1.1% 0.8% 0.4% 0.5% 10% 3.4% 3.4% 2% 3.3% 2.4% More than 10% 6.4% 5.2% 7.6% 5.7% 4.9% Mean (estimated) 3.4% 3.2% 3.5% 3% 2.1% 2

5 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. Hiring is slowly increasing* Finance/accounting staff and FTEs Public Private Public Private Public Private Public Private Public Private Fewer than 10 9% 25% 31% 30% 25% 35% 25% 34% 19% 33% % 30% 41% 43% 40% 46% 39% 42% 33% 44% % 14% 12% 11% 13% 9% 12% 10% 18% 11% % 13% 7% 10% 11% 5% 13% 7% 14% 6% % 8% 1% 4% 4% 3% 5% 3% 4% 3% % 4% 3% 2% 3% 1% 2% 2% 4% 2% 1,000 5,000 7% 6% 4% 1% 4% 1% 4% 3% 7% 1% More than 5,000** 20% 1% 1% 0% *All totals do not equal 100% because of rounding. ** More than 5,000 does not include data for 2010, 2011 and 2012, because the largest answer available was more than 1,000 employees. 3

6 Financial Executive Compensation Survey 2014 Bonus payments 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. Benefits 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%. Who makes executive compensation decisions? Almost half (44%) of companies reported that their board of directors makes pay decisions for all senior executives, while the CEO/management makes all pay decisions in 40% of respondent companies. Good governance is key to effective executive compensation programs, with the compensation committee playing a critical role in the design and decision-making process. 4 85% FINANCIAL EXECUTIVES top perquisite is CELLPHONE service, allowance or reimbursement Company car/ 19% Paid parking

7 Perquisites 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. Top perquisites* 11% Airline club membership Cellphone, cellphone allowance, cellphone reimbursement 85% Company car or car allowance 19% Paid parking 19% Health/fitness club 16% Executive physicals 12% Airline club membership 11% *Respondents could choose all that apply. 12% Executive physicals 16% Health/fitness club membership 5

8 Financial Executive Compensation Survey 2014 Long-term incentives 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, stockbased 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 payout packages chart shows the performance measures used to determine the long-term incentive compensation (cash, stock-based, other) for public and private company respondents. Stock-based long-term incentives* I am not eligible to receive this type of long-term incentive 53% Stock options 21% Restricted stock/restricted stock units 21% Performance shares 8% Other 2% *Respondents could choose all that apply. Payout packages Performance measures* 2014 *Respondents could choose all that apply. Public Private Company goals/objectives 27% 11% EBITDA 9% 12% Individual goals/objectives 12% 4% Cash flow 11% 3% Earnings per share growth 11% 1% Relative total shareholder return share price/stock price of peer company's stock 11% 0% 6

9 Employment contracts 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). Employment contracts* Change-in-control severance, number of months salary continuation Severance not change-in-control, number of months salary 59% 55% Minimum or guaranteed level of compensation 10% Guaranteed level of annual bonus 6% Tax gross-ups or other reimbursement of taxes owed with respect to compensation and benefits 6% Housing and other living expenses 1% *Respondents could choose all that apply. 7

10 Financial Executive Compensation Survey 2014 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. Please see the chart under survey methodology and demographics for breakdowns by company type. 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. Portrait of a CFO Typical duties may include: Providing strategic management of the accounting and finance functions Directing accounting policies, procedures and internal controls Recommending improvements to ensure the integrity of a company s financial information Managing or overseeing the relationship with independent auditors Collaborating with chief information officers on technology decisions Overseeing financial systems implementations and upgrades Managing relationships with investors and investment institutions Identifying and managing business risks and insurance requirements Robert Half provided the job duty descriptions for all positions included in the report. 8

11 CFO salary and total compensation statistics Basic salary all responses Less than $100 million $100 million $999 million More than $1 billion Total compensation all responses Less than $100 million $100 million $999 million More than $1 billion Number of responses th percentile $145,000 $200,000 $212,000 $170,000 $290,900 $370,000 Median $175,000 $245,000 $312,100 $220,000 $400,000 $867,400 75th percentile $223,800 $302,000 $392,000 $329,900 $634,300 $1,132,000 Survey snapshot: CFOs at a glance PUBLIC COMPANY PUBLIC COMPANYPRIVATE COMPANY PRIVATE COMPANY 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 9

12 Financial Executive Compensation Survey 2014 Portrait of a corporate controller Typical duties may include: Planning, directing and coordinating all accounting operational functions Managing the accumulation and consolidation of all financial data necessary for an accurate accounting of consolidated business results Coordinating and preparing internal and external financial statements Coordinating activities of external auditors Providing management with information vital to the decision-making process Managing the budget process Assessing current accounting operations, offering recommendations for improvement and implementing new processes Evaluating accounting and internal control systems Evaluating the effectiveness of accounting software and supporting database, as needed Developing and monitoring business performance metrics Overseeing regulatory reporting, frequently including tax planning and compliance Hiring, training and retaining competent accounting staff 10

13 Corporate controller salary and total compensation statistics Basic salary all responses Less than $100 million $100 million $999 million More than $1 billion Total compensation all responses Less than $100 million $100 million $999 million More than $1 billion Number of responses th percentile $97,000 $121,700 $145,000 $108,800 $134,200 $ Median $116,000 $162,300 $178,000 $143,000 $206,800 $284,300 75th percentile $147,000 $190,000 $215,000 $211,300 $307,000 $410,000 Survey snapshot: Corporate controllers at a glance PUBLIC COMPANY PUBLIC COMPANYPRIVATE COMPANY PRIVATE COMPANY 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 11

14 Financial Executive Compensation Survey 2014 Portrait of a VP of finance Typical duties may include: Ensuring compliance with state and federal regulations Establishing and maintaining sound relationships with financial institutions, including commercial and investment banks Making recommendations to optimize investments of financial capital Coordinating and managing the annual budget process Communicating the company s actual performance versus budgets and objectives to senior management Recommending growth strategies, as well as identifying areas for improvement Collaborating with leaders of other departments to prepare for critical business opportunities Hiring, training and retaining competent finance staff 12

15 VP of finance salary and total compensation statistics Basic salary all responses Less than $100 million $100 million $999 million More than $1 billion Total compensation all responses Less than $100 million $100 million $999 million More than $1 billion Number of responses th percentile $123,100 $157,000 $192,500 $128,800 $182,000 $238,800 Median $142,000 $184,000 $217,000 $191,000 $235,700 $367,000 75th percentile $175,800 $210,000 $262,500 $264,000 $302,000 $604,900 Survey snapshot: VPs of finance at a glance PUBLIC COMPANY PUBLIC COMPANYPRIVATE COMPANY PRIVATE COMPANY 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 13

16 Financial Executive Compensation Survey 2014 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 wellpositioned 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 to active Financial Executives International (FEI) members from November 2013 through January 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 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. 14

17 Survey methodology and demographics Number of responses by company type Titles Public Private Nonprofit Total Percent Corporate CFO % Corporate controller % VP of finance % Director (of finance, accounting) % Treasurer % Chief accounting officer % Assistant controller % Divisional/geographic/regional controller % Corporate president and/or CEO % Divisional/geographic/regional CFO % Manager (of finance, accounting) % Consultant % Chief operating officer % Managing director % Chief tax officer/vp tax % Chief auditor/vp internal audit % VP, strategic planning and business development % Chief administrative officer % Principal % Chief risk officer/vp risk and audit services % Independent board director or trustee % Business owner % Totals % Percentages 27% 66% 7% 100% 15

18 Financial Executive Compensation Survey 2014 About the authors Thomas Thompson Jr. Thomas Thompson Jr. is a senior research associate at Financial Executives Research Foundation, Inc. (FERF) and has written more than 40 published research reports and white papers. He earned a BA in economics from Rutgers University and a BA in psychology from Montclair State University. Before joining FERF, he held positions in business operations and client relations at NCG Energy Solutions, AXA Equitable and Morgan Stanley Dean Witter. tthompson@financialexecutives.org. Ken Cameron Ken Cameron, CCP, PHR, is a director in Grant Thornton s Compensation and Benefits Consulting practice in Atlanta and serves as a Southeast Region compensation leader. He has more than 25 years of compensation and HR leadership experience. Before joining Grant Thornton, Cameron was a senior consultant at Towers Watson, and he also worked for more than 10 years as a compensation and benefits leader for BellSouth. Cameron has earned the designation of Certified Compensation Professional from World at Work. He earned an MS in industrial relations from Loyola University s Institute of Industrial Relations and a BA in psychology from the University of Rochester. ken.cameron@us.gt.com. 16

19 About Financial Executives Research Foundation, Inc. Financial Executives Research Foundation (FERF) is the nonprofit 501(c)(3) research affiliate of Financial Executives International (FEI). FERF researchers identify key financial issues and develop impartial, timely research reports for FEI members and nonmembers alike, in a variety of publication formats. FERF relies primarily on voluntary tax-deductible contributions from corporations and individuals. FERF publications can be ordered by logging onto The views set forth in this publication are those of the author and do not necessarily represent those of the FERF Board as a whole, individual trustees, employees or the members of the Advisory Committee. FERF shall be held harmless against any claims, demands, suits, damages, injuries, costs or expenses of any kind or nature whatsoever except such liabilities as may result solely from misconduct or improper performance by FERF or any of its representatives. Copyright 2014 by Financial Executives Research Foundation, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means without written permission from the publisher. International Standard Book Number Printed in the United States of America First Printing Authorization to photocopy items for internal or personal use, or the internal or personal use of specific clients, is granted by FERF provided that an appropriate fee is paid to Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA Fee inquiries can be directed to Copyright Clearance Center at (978) For further information please check Copyright Clearance Center online at an affiliate of financial executives internat 17

20 Financial Executive Compensation Survey 2014 Financial Executives Research Foundation, Inc. (FERF) acknowledges and thanks the following for their longstanding support and generosity. Platinum Major Gift $50,000 + Exxon Mobil Corp. Microsoft Corp. Gold President s Circle $10,000 $14,999 Cisco Systems Inc. Cummins Inc. Dow Chemical Co. General Electric Co. Wells Fargo & Company Silver President s Circle $5,000 $9,999 Apple Inc. The Boeing Company Comcast Corporation Corning Inc. Credit Suisse AG Dell Inc. Duke Energy Corp. Du Pont Eli Lilly and Company General Motors Foundation Halliburton Company The Hershey Company IBM Corporation Johnson & Johnson Lockheed Martin Inc. McDonald s Corporation Medtronic Inc. Motorola Solutions Inc. PepsiCo Inc. Pfizer Inc. Procter & Gamble Co. Sony Corporation of America Tenneco Inc. Tyco International Management Co. Wal-Mart Stores, Inc. 18

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22 Financial Executive Compensation Survey 2014 Financial Executives International 2014 Distinguished Service Award Recipient. Congratulations from Financial Executives Research Foundation (FERF)! Dale Wallis Dale Wallis has been an active and visible member of Financial Executives International (FEI) since 2001, demonstrating leadership, expertise and service to FEI and FERF throughout his financial career. Wallis has contributed to FEI in many capacities, including serving on the FEI board of directors, the National Leadership Council, as chair of the Audit Committee, chair of the Committee on Government Business, a member of the Budget and Finance Committee, the Pension and Investment Committee, the Committee on Benefits Finance, and the Strategic Planning Committee. He has served in leadership roles, including vice president in the Western Area under the prior FEI governance structure. He has also been a member of the Financial Executives Research Foundation s Research Committee. Wallis also served the chapters to which he has belonged, including tenure on the boards of the Los Angeles and Oklahoma City Chapters of FEI. Wallis career history includes joining The Aerospace Corporation in 1996 and serving in a variety of finance roles prior to being elected to serve as the vice president, CFO and treasurer, a position which he held from January 2001 until he retired in December Prior to his experience at COMPS and Mycogen, Wallis was in senior management at CPA firms Ernst & Young and KPMG. He also served as a partner in a local CPA firm in Stillwater, Okla., and held internal audit positions at American Airlines. Wallis also served as a member of the faculty at East Central University in Ada, Okla., and has held adjunct faculty positions at Oklahoma State University and other universities. He is currently a member of the American Institute of CPAs and additionally serves on the Dean s Advisory Council for the College of Business at Loyola Marymount University in Los Angeles, and on the Dean s Advisory Board for the College of Business at California State University, Dominguez Hills. Over the years, Wallis has served on the boards of many civic and charitable organizations. He was twice his party s nominee for state auditor in Oklahoma. Wallis holds BS and MS degrees in accounting from Oklahoma State University and has pursued postgraduate studies at the University of Oklahoma. He lives in Manhattan Beach, Calif., with his wife, Louise. Before joining Aerospace, Wallis was vice president of administration and CFO for COMPS Infosystems, Inc., a real estate information services company. Before that he was director of finance for Mycogen Corporation, a publicly held, international agricultural biotech company. In these positions Wallis was responsible for finance, tax, human resources, information technology, and merger and acquisition activities. 20

23 Financial Executives International 2014 Distinguished Service Award Recipient. Congratulations from Financial Executives Research Foundation (FERF)! William D. Parmelee Bill Parmelee has spent countless hours with peers at the national and local levels of FEI since becoming a member in 1992, providing his expertise and leadership to various committees at both levels. Over his years of membership, Parmelee has served as a member of FEI s board of directors, the National Leadership Council, the Audit Committee, the Budget & Finance Committee and the Pension and Investment Committee. Under the previous governance structure, Parmelee had served in leadership roles in the Southern Area and rose to the rank of Southern Area vice president. Parmelee s leadership and service extend to the Chapters to which he has belonged, including tenure as president of the FEI Charlotte Chapter. In his professional career, Parmelee joined Oxbow Carbon LLC as CFO in January A native of Cranston, R.I., he earned a BS degree in business administration from the University of North Carolina Chapel Hill in After graduation, he began his career with Ernst & Whinney in Raleigh, N.C., and was licensed as a CPA by the State of North Carolina in In 1988, Parmelee left Ernst & Young (formerly Ernst & Whinney) and joined Qualex Inc. in Durham, N.C., the world s largest wholesale photofinisher and a joint venture between Fuqua Industries and Eastman Kodak, later a wholly owned subsidiary of Kodak. Hired as the JV s first director of finance, he rose to the level of CFO before departing for National Gypsum Company in Charlotte, N.C., in He first served as vice president-finance before being promoted to CFO at the end of Parmelee is also a member of The Conference Board s CFO Council and is a Life Member of the UNC Chapel Hill Alumni Association. He was recently elected to the board of directors of the Cultural Council of Palm Beach County, after serving for a number of years on the board of directors of the Arts and Science Council of Mecklenburg County in Charlotte, N.C. 21

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