Category Archives: CFO

CFO base pay raises outpace CEOs’

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Dive Brief:

  • CFO salary increases edged out CEO increases in 2022, with CFOs on average seeing an increase in base salary of 5.5% while CEOs’ pay increased by 4.4%, according to a recent report by Compensation Advisory Partners.
  • Most (80%) of both CFOs and CEOs saw increases in base salary, the report from the compensation consulting firm found. Of those companies making increases, CEOs saw a typical range between 3.4% to 7.4%, compared to the 3.6% to 9.1% range for CFOs.
  • A notable portion of both CFOs and CEOs saw significant increases in total compensation for 2022, with 40% of CEOs and one-third of CFOs seeing a 25% increase in total compensation compared to their total pay for the prior year.

Dive Insight:

The report, based on proxy statements, provides an early look at payment trends even as filings continue to trickle in during March and early April.

The bigger CFO salary gains could be partially due to the fact that the finance chiefs’ role has changed over time from a pure reporting function — the  “level of sophistication for the role has been increasing,” Ryan Colucci, principal for CAP and the author of the report, said in an interview.

Lingering stresses from the COVID-19 pandemic — which put particular strain on certain roles including the chief legal or chief human resource officer as well as CFOs — could also be contributing to the boost in salary, for that matter.

Executive team priorities have shifted since the pandemic, with individuals searching for a greater work-life balance which could be causing both higher turnover in these roles — Colucci has seen greater CFO turnover over the past six to 12 months, he said — as well as efforts by companies to hang on to skilled, dependable executives.

“I think if you have someone good, you want to reinforce it with a nice increase,” he said.

Equity awards also remained the bulk of the pay mix for the majority of executives, representing two-thirds of total compensation for CEOs, and 56% of total compensation for CFOs. Additionally, while top executives saw higher increases in total compensation compared to their finance chiefs, they were also more prone to significant fluctuations in the area of incentive compensation.

A higher percentage of CEOs experienced increases or decreases of 25% or more concerning their incentive compensation than CFOs, with one-fifth of companies keeping their equity awards on par with the prior years’ grants.

Raises for U.S. CFOs of small to mid-sized businesses outpaced inflation, an August report by French fintech startup Spendesk showed, surging 16% from 2021 to reach approximately $224,000.

Colucci expects future filings to continue to show salary increases in 2022. As companies facing economic headwinds seek out steady financial leaders, increases “might be a little preventative” from some companies as they look to entice their financial leaders to stay put, he said.

“I think, not that there’s a CFO shortage by any means, but I think because it is a more important role than it was maybe five, 10 years ago, I think that kind of lends itself to more movement,” he said. “I don’t see it slowing down. I think the pace of transitions will probably keep up for this year.”

While CFO base salary increases beat out top executives, CEOs still saw higher increases in total compensation, according to the report. The increase in total compensation on average was mild, rising by 4% for CEOs compared with the 2% average for finance chiefs. However, 40% of CEOs and approximately 33% of CFOs saw a significant 25% increase in total compensation compared to their total pay for the prior year.

This could also be driving trends in CFO payments —  “the biggest thing driving the trend of CFO pay going up is that CEO pay is going up, and other executives follow,” Rosanna Landis Weaver, director, wage justice & executive pay for consumer advocacy group As You Sow wrote in an email to CFO Dive.

CEO pay has continued to increase, a trend that shareholders will likely push back on as company performance wobbles ahead of a downturn. “That will be particularly true if we see companies that try to game ‘pay for performance,’” she wrote. “Shareholders are clear that structures should mean pays goes down when performance goes down.”

“I have never read in a proxy statement that the company’s performance is influenced by externals when the externals are positive,” Weaver wrote in an email, noting that “when the externals may affect performance on the downside, we read endless language about how challenging things are. Shareholders are becoming cynical about that.”

Companies are gearing up for an environment where they will soon need to share further details surrounding both executive pay and financial performance. Pay-versus-performance rules, which were adopted last year by the Securities and Exchange Commission, require large public companies to disclose additional information regarding executive compensation, including a table that covers compensation and financial performance indicators.

The financial performance measures will include the companies’ total shareholder return and net income, according to the SEC. 

Executive pay policy rejections ticked up in 2022 from 2021, according to recent data from Willis Towers Watson, up to 86 last year compared to 71 in the year prior — marking the highest number of rejections since “say-on-pay” was made mandatory in 2011, the company said.

New MetroHealth CEO suspends bonuses that led to predecessor’s firing

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MetroHealth CEO Airica Steed, EdD, RN, is suspending supplemental and one-time bonus programs that led to the firing of former CEO Akram Boutros, MD, Cleveland.com reported March 14. 

Dr. Steed also told Cuyahoga County Council that new safeguards are being put in place after Dr. Boutros was accused of taking $1.9 million in what the health system’s board called “improper bonuses,” according to the report.

The plan outlined by Dr. Steed includes a national search to fill several critical executive roles, including a human resources officer who will ensure the department is thoroughly involved in compensation matters going forward, according to the report. Dr. Steed said that structure was not previously in place. 

The system is also seeking a permanent CFO after Craig Richmond resigned from the role, according to the report. Geoff Himes, the health system’s former vice president of finance, is serving as interim CFO. 

The plan also calls for creating a workplace culture where “no one is afraid to speak up if they’re not sure what’s being asked of them is the right thing to do,” according to the report.  

A report from the accounting firm BDO at the request of the system’s board found that Dr. Boutros paid himself $1.9 million in unauthorized bonuses and concealed the actions from the board, according to Cleveland.com. He was fired in November after the payments came to light. He was set to retire at the end of 2022. 

The BDO report said Dr. Boutros created the Supplemental Performance Based Variable Compensation/Supplemental Incentive Compensation program without involving the human resources department. Former CFO Mr. Richmond allegedly forwarded details of the program down the chain for payroll approval without confirming there had been board approval.  

Dr. Boutros’ attorney Jason Bristol sent a letter to Cuyahoga County Council alleging the BDO report is “biased, inaccurate and seriously flawed,” according to Cleveland.com. Mr. Bristol argued the report contained no supporting evidence for the assertion Dr. Boutros secretly created a bonus program. He also said Mr. Richmond resigned because he believed the report “inaccurate, incomplete, and misleading,” citing a letter released by Mr. Richmond’s attorney. Mr. Richmond resigned two days before the report was released. 

Dr. Boutros has filed multiple lawsuits since his firing. He filed a lawsuit Nov. 28 in Cuyahoga County Common Pleas Court, alleging violations of Ohio’s Open Meetings Act and the board bylaws. Dr. Boutros also alleges board retaliation and accuses the MetroHealth board of violating the law in its hiring of Dr. Steed. Dr. Boutros filed a separate lawsuit against the health system in December alleging breach of contract. He has repaid the system $2.1 million for the bonuses and interest. 

CFOs to boost compensation

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Dive Brief:

  • CFOs are planning to increase their compensation spend in 2023, with 86% of finance chiefs noting they plan to raise it by at least 3% year-over-year, according to a recent survey by Gartner.
  • CFOs are still facing a tight labor market in 2023. As CFOs weigh increased turnover and a more remote workforce, “they’re thinking through, how do they use compensation as a lever to engage and retain talent across their workforce,” said Alexander Bant, chief of research in the Gartner finance practice.
  • Only 5% of the 279 CFOs surveyed stated they planned to reduce their compensation spend in 2023, according to Gartner.

Dive Insight:

While CFOs typically budget more for compensation every year, ongoing inflationary pressures and a still-tight labor market puts compensation plans “front and center” in CFOs’ “ability to engage and retain top talent,” Bant said in an interview.    

However, this does not mean finance chiefs will be budgeting for sweeping pay raises across their entire workforce — CFOs are “not trying to keep up with inflation across the board,” Bant said.

Rather, they are working with other members of the C-Suite such as the chief human resource officer and using tools like advanced analytics to single out and reward top performers which might be at more risk of departing for other opportunities, he said.

“CFOs are being more deliberate about how they allocate that money,” Bant said.

While the pace of wage growth slowed in the fourth quarter of 2022, according to recent data from the Labor Department, tamping down fears of a wage-price spiral, the war on talent remains a top worry for finance chiefs. Raising compensation can allow companies to be more competitive in the face of ongoing talent shortages, especially as workforce needs change.

For those companies which are moving employees back into the office, for example, raising compensation can help them to better compete against the remote or hybrid work opportunities which are becoming increasingly common, for example, Bant said.

Upping compensation can also help firms to find or hold onto employees with the key skills they need in areas such as digital transformation. Despite cost pressures, 43% of finance chiefs said they plan to increase their companies’ technology spend by 10% or more, according to the Gartner survey.

“What we’re hearing is, ’Yes, we are right-sizing parts of our organization and reducing head count in certain areas, but at the same time, we still have open roles and we’re still searching for talent in those areas that align to our digital transformation priorities,” Bant said of the search for technology talent.

Such skills still come at a premium, for that matter, despite the recent spat of layoffs across high-profile tech companies such as Google parent Alphabet, IBM and Microsoft. While these companies have reduced staff, they may not be letting go of employees with critical hardcore coding, data analytics or artificial intelligence related skills, Bant said.

“There is more talent available from technology companies, but that doesn’t mean that talent necessarily has the technical skills to drive the digital transformations that many CFOs and their leadership teams need,” he said.

KPMG primes shrinking CFO, CPA pipeline

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The shortage of accountants is one of the main concerns keeping KPMG’s Greg Engel up at night. The firm is teaming up with universities to expand the talent pool.

KPMG’s Greg Engel likens the accounting profession to the turtle in the proverbial race with the hare — a turtle that’s seeking to pull ahead even as it competes with flashier industry sectors for workers.

The shortage of accounting talent is one of the main concerns keeping Engel — vice chair of tax in the U.S. for the Big Four accounting firm — up at night as he assesses the new year’s challenges, even as KPMG has undertaken numerous initiatives to ease the talent crunch. 

At the same time, he sees a potential silver lining for his sector in the recent surge of layoffs in the formerly sizzling tech sector that has won over some college graduates who might have otherwise gone into accounting.

“A lot of people went to the technology sector because it was exciting. But now that Meta and Twitter and all these other companies are laying off people, kids going into college might go, ‘wait a minute, maybe KPMG sounds a little better than Twitter,’” Engel said in an interview. “Accounting is that boring, stable profession that doesn’t do as well in hugely expansive economies but does great when the economy’s on the downslide.”  

Making accounting’s case

Historically, the Big Four accounting and consulting firms have mounted robust programs designed to recruit and train accounting students right out of colleges and major universities. 

KPMG, along with PwC, Ernst & Young and Deloitte, hire thousands of graduates and students each year out of colleges, often training them through internships which lead to full-time jobs. Many of the certified public accountants go on to be controllers, tax directors and even CFOs. The entry level accounting salary range at such programs in the tax area can be roughly in the $70,000 to $80,000 range, depending on the market, according to some industry estimates. 

“The hallmark of the Big Four was to train people really, really well,” Engel said. The longer employees stay at a firm, the better their prospects after they leave, Engel said.

That means an employee who leaves after a couple years could probably join a company’s accounting department at a lower level, he said. But if the employee leaves after rising to the level of senior manager, he or she could join the same company as controller — and those who leave as a partner might join as a CFO, Engel said.  

CFO machine showing signs of wear  

But the machine generating CPAs and CFOs has shown signs of wear in recent years. For one thing, KPMG has not been immune to the Great Resignation. It was hit by the surge in turnover that weakened the middle ladder rungs of its workforce. “There’s a kind of battle in the middle,” Engel said. The company responded in part by hiring experienced accountants from companies like Apple and Home Depot, he said. 

At the same time, accounting has attracted fewer students in recent years. The total number of U.S. students completing a Bachelor’s degree in accounting fell about 8% in the 2019-2020 school year compared with the 2011-2012 period, shrinking to 52,481 graduates from 57,482, according to a 2021 report from the American Institute of Certified Public Accountants.

Priming the pipeline

Firms and accounting organizations have been taking deliberative steps in recent years to boost their case with talent and solve the talent shortage. For instance, the AICPA and the Department of Labor announced in November that they had teamed up to cultivate candidates and expand the pool of professionals, CFO Dive reported. 

If students are not deterred by the accounting profession’s long hours and subdued reputation, they may feel reluctant to put in the credit hours required before taking the exam to become a Certified Public Accountant. That typically means a student will need more study beyond that of a four-year degree. 

In an effort to make the extra course work pay off, KPMG worked with a number of universities to develop a Master in Accounting and Data Analytics Program that gives students the data analysis skills that are increasingly important in the field.

Recently, an additional seven universities were added to the program and KPMG has pledged to provide more than $7 million in scholarships. The schools added to the program included some historically Black Colleges and Universities such as Howard University School of Business and North Carolina Agricultural and Technical State University. Other universities that offer the program include Villanova University and The Ohio State University. 

Separately, KPMG has teamed up with Engel’s alma mater, the University of Northern Iowa in Cedar Falls, Iowa, to help strengthen the accounting program and opportunities for students attending Des Moines Area Community College.

The company will also aim to provide internships to the students who often attend school at night or part-time, which can make it difficult to obtain the credit hours needed to become a CPA. 

“We’re going to start adding people to the profession with two-year associates degrees,” Engel said, noting that similar programs are cropping up elsewhere. “We’ll give them a pathway to add the extra courses and programs they need.” 

CFOs experienced in cutting costs, restructuring in high demand

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Fall is typically a period of increased CFO turnover as hospitals and health systems begin searches for new executives for the beginning of the following year, but the pressures associated with high inflation, a projected recession and the continued effects of the pandemic have led to more churn than usual for top financial positions, The Wall Street Journal reported Oct. 23

Many economists and financial experts are expecting a recession to hit the U.S. in early- to mid-2023. This is pushing some executives to switch roles now before the labor market changes. Many healthcare organizations are also preparing for a potential economic downturn by searching for CFOs who are experienced in cutting costs or restructuring operations, according to the report.

Recession planning in healthcare is challenging because it can have both negative (payer mix, patient volume) and positive effects (decrease in labor and supply inflation) on financial performance, according to Daniel Morash, senior vice president of finance and CFO for Boston-based Brigham and Women’s Hospital.

“The best advice I would give is that hospitals need to consider recession scenarios when making long-term commitments on wage increases, capital expenditures and planning for capacity for patient access,” Mr. Morash told Becker’s Hospital Review. “Most of our focus needs to be on the acute challenges we are facing. Still, it’s important to be careful not to overreact or overcommit financially when a recession could change a number of trends we’re seeing now.”

CFOs need to prep for healthcare’s lagging inflation

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Healthcare costs are expected to jump 6.0% next year. CFOs must prepare accordingly, advises WTW’s Tim Stawicki.

CFOs need to be prepared for a “higher tail” of medical inflation — even if general inflation eases in the near future, Tim Stawicki, chief actuary, North America health & benefits of Willis Towers Watson (WTW) told CFO Dive.

With the Consumer Price Index (CPI)  rising to 8.5% in July and the recent rise in the core Producer Price Index (PPI), the Federal Reserve will probably look to hike interest rates even farther. 

“CFOS need to be prepared for the case that if general inflation eases, there may be two or three more years where they need to think about how they are managing the costs of health care plans,” he said in an interview. 

Inflation, which can more immediately impact consumer prices, works somewhat differently when it comes to costs of medical care. “Employers are paying healthcare costs based on contracts that their insurer has with providers, which are multiple years in length. So if a deal with the hospital or contract does not come up until 2023, then that provider has the opportunity to renegotiate higher prices for three years,” said Stawicki. 

The recent Best Practices in Healthcare Survey by WTW consisting of 455 U.S. employers found that employers project their healthcare costs will jump 6.0% next year compared with an average 5.0% increase expected by the end of this year.

Further, employers see little relief in sight — seven in 10 (71%) expect moderate to significant increases in costs over the next three years. Additionally, over half of respondents (54%) expect their costs will be over budget this year.

Balancing talent retention and healthcare costs

Talent retention has also remained an entrenched challenge for CFOs over recent months and continues to be top of mind. 

Given inflationary pressures and a potential looming recession, employers are having trouble finding the workers they need to run their businesses. A rise in healthcare benefit costs will make this all the more challenging, said Stawicki. “Employers are looking around and saying ‘I need to find talent to help me run my business and I can’t do that if I have an ineffective program in healthcare benefits,’” he said. 

There is a direct link between business outcomes and in particular employee productivity and employees’ ability to manage their health and financial environment, according to WTW’s Global Benefits Attitude Survey. “Losing the ability to offer programs and benefits that meet employee needs is impacting business,” said Stawicki.

It comes down to finding the balance between cost management in an environment where talent is hard to come by, he said. In order for CFOs to be successful in financing benefit programs they need to look at finding ways to partner with their counterparts in human resources, said Stawicki. 

Sixty-seven percent of employers said that managing company costs was a top priority in the company’s August Best Practices in Healthcare Survey, versus the 42% who said that achieving affordability for employees was a top priority. In the near future, CFOs need to establish a relationship with HR counterparts that can facilitate “ways to manage company costs without shifting it to employees,” said Stawicki. 

Ultimately, company costs remain paramount for employers but running a successful business will also require keeping employee affordability top of mind.

CFOs continue talent retention battle

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Dive Brief:

  • CFOs looking to attract and retain the right kind of talent amidst inflationary pressures, rising interest rates and other economic tensions need to “double down on recognition and meaningful work for employees,” said Jessica Bier, managing director of Deloitte Consulting, in an interview. 
  • In order to attract and retain viable talent to keep business afloat, 71% of CFOs indicated that a flexible workplace environment was their approach, 63% said clarity around career development and growth opportunities and 62% pointed to increased salaries, per the second wave of data in the Q3 CFO Signals report.
  • The report also revealed that CFOs who took steps to alter, reduce or streamline the type of work their finance organizations performed saw several benefits throughout the enterprise — 78% said one benefit was more time spent on higher-value activities and 71% indicated greater use of technology was another. Contrastingly, only 20% saw talent retention as a benefit, and even less (10%) saw higher quality talent as one.

Dive Insight:

The managers and workforce of financial departments are looking for five main things, said Bier, per the report — those being work environment flexibility, career growth and development, salaries, meaningful work and recognition, she said.

“As we think about the workforce experience, every CFO is also the chief talent officer,” Bier said. “Your HR business partner can support you but at the end of the day the way your managers work and the way you connect people to the work that they’re doing — that’s the CFO’s job to set that tone.”

In today’s macroeconomic environment, with inflation at its highest point in nearly four decades, meeting the expectations and needs of finance employees is all the more expensive, and important. 

One misconception, Bier said, is that a recession means workers will be happy just to have a job. “The people in the workforce who are the ones you want to keep, are the ones who are always going to have options,” she said. 

Talent retention continues to be a multifaceted challenge for CFOs and remains top of mind. Over half of CFOs (54%) cited hiring and retaining staff as the most difficult task over the next 12 months, according to a July Gartner study.

Companies mull benefits of interim CFOs

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Interim CFOs can cut through politics to help navigate companies through murky waters, experts say.

As they face financial difficulties, leadership crises or other inter-company developments, many firms have ceded their financial reins to interim executives over recent months.

Retailer Bed, Bath & Beyond quickly named their chief accounting officer as interim CFO following the death of their previous financial head earlier in September, for example, while real estate investment trust (REIT) Tanger’s chief accounting officer also recently served a stint as their interim financial head after the REIT ousted their previous CFO, a 28-year company veteran.

One of the reasons to tap an interim CFO is simply to provide peace of mind for the company and its shareholders while the search to find a more permanent candidate is ongoing, said Shawn Cole, president of boutique executive search firm Cowen Partners in a recent interview.

While some searches are as short as 38 days, the majority of executive searches can take between four to six months, a period where remaining without financial leadership is untenable. Firms seeking interims must still consider several key factors when choosing such an executive, however, Cole said.

Companies seeking external candidates, for example — which can be due to inter-company turmoil or, as is often the case, because the company may lack the bench strength to pull forward an internal candidate, Cole noted — should take care to consider “professional interims” for the position as opposed to an unattached CFO, he advised.

“I would just be very cautious that you are not just hiring an unemployed CFO,” Cole said. “There’s plenty of wonderful professional interim CFOs out there that are excellent at consulting. You don’t necessarily want to get yourself into a position where you are engaging just an unemployed CFO, that needs a job.”

Getting a fresh perspective

Bringing in an external interim can also grant companies benefits they may not see with internal candidates, for that matter, explained Mike Harris, CEO of Patina Solutions. Patina, which focuses primarily on placing interim executvies, was acquired by fellow executive search company Korn Ferry this past April.

It can help other executives, notably the CEO, to get “fresh perspectives and viewpoints,” he said.

“If someone is coming in for six months they can tell it like it is, they can come in and make a quick assessment,” he said. “Candidly, it does take out the politics if you’re in there on a limited basis.”

Similar to Cole, Harris pointed to a growing population of what Harris terms as “career interims,” who are working in that capacity because they enjoy the flexibility of movement — they get to go in and get critical projects done for the company, he said.

Turning to an external interim can also help companies execute on particular goals such as a restructuring, said Harris, nothing that what companies need from someone taking on the position for six months could be “very different” than what firms may be looking for out of a permanent CFO. Their short tenure means interims can be “very objective” and have a “big impact” at a company in a short period of time, he said.

“The reason [interims are] usually coming in there is because they have something in their background that’s going to be very helpful for the situation that company is facing,” he said.

Companies may also take advantage of an interim CFOs’ skills as a sort of mentorship for their existing CFO — the executive in the permanent seat may lack M&A or other key experience, for example, that an interim may be able to provide during their short-term tenure.

Tapping insider knowledge

Pulling forward internal candidates to fill the CFO gap can also have benefits for firms if possible, as such candidates have intimate knowledge of the companies’ status and needs that outside executives may lack.  

This may be the case for struggling payment processor PayPal, another example of a firm who recently appointed an interim CFO — moving Gabrielle Rabinovitch, their SVP of capital markets into the seat for a second time after the newly-minted CFO departed for medical leave.

In PayPal’s case, the company needs “stability” in its financial chair, which has been lacking since the departure of its previous CFO John Rainey to retailer Walmart, said Josh Crist, managing director for Crist|Kolder Associates.

“It may be time to think about a young internal player as an interim,” Crist wrote in an email regarding PayPal’s CFO woes. “Institutional knowledge should be key given strategic issues the company faces.”

Such a candidate may prove to be a permanent fit at the company, for that matter, he said.

“I believe the current interim might actually be correct for the full time gig! I believe they need an internal player who has seen the nuts and bolts/knows the operating and strategic plan and can help execute,” Crist wrote in an email. “I don’t believe they need a high-level strategist.”

The future of the CFO seat

While companies must carefully consider what it is they are seeking out of an interim — or even a permanent — CFO candidate, qualified executives also have their pick of potential options as the market for executive talent grows more competitive.

CFOs who would have potentially retired or left their current roles years earlier, but were stymied by the pandemic, have now begun to do so, contributing to a narrowing of the potential talent pool. For that matter, the list of responsibilities handed to modern CFOs has grown over recent years, but companies may not have fully adjusted their leadership structure accordingly, Cole said.   

“The CFO is no longer the chief accounting officer,” Cole said. “They really effectively should be the right hand to the CEO. While many companies have increased demands of the CFO, they haven’t necessarily brought the CFO into that light. And so I think companies that can show a CFO candidate that they will have a position of significance of their organization, be that strategic business partner to the CEO, I think that goes a long way.”

Companies expand CFOs’ role to retain them amid high demand

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The pressure is on for boards to hold onto chief financial officers as firms face the prospect of an economic slowdown and intense competition for talent.

Demand for finance chiefs continues to be high in U.S. businesses, according to a July 4 report from The Wall Street Journal. Data from Russell Reynolds Associates indicates that CFO turnover at companies in the S&P 500 rose to 18 percent in 2021, compared to 15 percent in 2020 and 14 percent in 2019. 

Some new strategies call for broadening CFO responsibilities or elevating their positions altogether to retain top executives, according to Joel von Ranson, head of recruitment firm Spencer Stuart’s global functional practices. 

“Companies create these broader roles and titles to engage and recognize and motivate the very best of the best,” Mr. von Ranson said. 

CFOs at companies in the S&P 500 and Fortune 500 average about five years in their job, according to executive search firm Crist Kolder Associates. Expanding the CFO role allows organizations to create opportunities to retain key talent past the five-year mark. 

In 2021, just under 8 percent of chief executive officers at companies in the S&P 500 and Fortune 500 came from the CFO seat.