Magazine article Global Finance

CFO Pay Hikes Are Slowing

Magazine article Global Finance

CFO Pay Hikes Are Slowing

Article excerpt

As far as big pay increases go, chief financial officers appear to be taking a breather.

A Pearl Meyer & Partners "flash" report on executive compensation prior to the spring proxy season reveals CFOs in 40 large US companies averaged just 5% pay increases in 1996 over 1995. While that's not too much less than the 8.45% compounded annual growth rates that CFO pay packages had sustained over the past five years, it's less than a third of the 16.08% two-year compounded annual growth rate.

The overall pay increase achieved by CFOs in 1996 may seem paltry, says Diane Posnak, Pearl Meyer's managing director, primarily because option grants plummeted. "The real growth in CFOs' compensation-as in CEOs'-has come in stock option grants, and that slowed down last year for both groups." CFOs' 2% increase in stock option grants for 1996 compared with a 28.67% two-year compounded annual growth rate. Nonetheless, option grants make up the largest portion of the finance officers' pay package-30.9% for CFOs (and 35.6% for CEOs) in 1996. In contrast, salaries contributed just 23% of CFO compensation and 21% of CEO pay.

Pearl Meyer's 1995 figures differ from the 23.6% increase Global Finance reported in the August 1996 issue because our criteria differed: While consulting firm Pearl Meyer includes option grants, the Global Finance proxy study instead includes exercised options, which contributed mightily in the roaring 1995 market.

Ironically, bull markets can dampen enthusiasm for stock option grants. "Unless a company feels very confident about its stock, it might think twice before granting an option that requires the stock to rise above an all-time high," says Posnak. …

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