Pay-for-Performance Trend Extends to CFOs, CUNA CFO Council, 10/10/2012

http://www.cunacfocouncil.org/news/5022.html

Pay-for-performance, a growing component of CEO compensation packages, is extending to chief financial officer (CFO) compensation packages at large U.S. firms, according to "Impact of Job Complexity and Performance on CFO Compensation," a research paper.

Researchers from Temple University, Washington and Lee University, and the University of Texas at San Antonio analyzed the compensation of 2,107 CFOs at 1,477 firms with assets near $3 billion, between 1993 and 2006.

Effective management of a firm's earnings and expectations can highly determine rewards. CFOs got much higher bonuses--42% higher on average--in years when they met or barely beat analyst expectations, says the paper. "CFOs are being rewarded for their job-specific performance."

The findings highlight the need for CFOs to encourage analysts to keep their earnings projections at achievable levels.

The average total compensation for CFOs increased sharply during those years from about $762,000 in 1993 to about $1.46 million in 2006. The compensation trend mirrored the growing importance of the role of the executive position, researchers say.

Credit union CFOs have seen their roles expand as well. Tight margins and a slow recovery make strategic and financial planning a year-long necessity, a panel of CFOs told attendees at CUNA's Economics & Investments Conference.

For credit union senior executives, loan growth and earnings (return on assets, return on equity, or return on investments) remain the top criteria used for performance-based incentive pay.

The median total compensation package for a credit union CFO in 2011 was about $130,000, according to CUNA's 2012-2013 Senior Executive Total Compensation Survey.

CUNA's survey points out that credit union executive salaries vary considerably from those of banks and other large, privately held firms, as they don't include any of the compensation that bank CFOs and COOs receive in stock grants and stock options.