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Vendredi 21 Septembre 2012

USA: Compensation for CFOs increased modestly in 2011

Compensation for Chief Financial Officers of S&P 500 companies rose 5.9% in 2011, according to new analysis by Mercer. CFOs received a median $2.75 million in total direct compensation (salary plus actual short-term incentive payout plus grant-date expected value of long-term incentives). CFOs of S&P 100 companies received a somewhat more modest increase of 5.5% to a median $4.34 million, while those at the remaining companies (“Other 400”) rose 6.1% to a median $2.56 million.

Like that for many named executive officers, Mercer’s analysis shows the pay mix for CFOs shifting gradually from fixed to variable compensation. Specifically, the proportion of total direct compensation consisting of salary shrank from 27% in 2009 to 24% in 2011. The portion of salary decreased even more for CFOs of S&P 100 companies (from 26% in 2009 to 22% in 2011). This diminution was evident for CFOs of the Other 400 as well (29% to 25%, respectively).

Despite this shift from fixed to variable pay, the median increase for salaries of CEOs of S&P 500 companies was 3.7% to a median of $559K. CFOs of S&P 100 companies were paid a median of $704K, while those at the Other 400 companies were paid a median of $542K. This differential reflects the larger size of the S&P 100 companies; the revenues of S&P 100 companies are more than six times those of the Other 400 ($38.44 billion versus $6.27 billion, respectively).

Moreover, a modest year-over-year decrease in short-term incentives partially offset the increase in salaries. Following a double-digit increase in 2010, median change in actual total annual compensation (salary plus actual short-term incentive payout) in 2011 was 3.3% to $1.13 million.

“The above-target payouts in 2011 reflect excellent financial results for many companies, including a healthy 10.6% year-over-year median increase in pretax income,” said Ted Jarvis, Mercer's Global Director of Rewards Data, Research and Publications. “However, as a percentage of target compensation, short-term incentive payouts shrank from 130% in 2010 to 118% in 2011. Compared to 2010, when median pretax income increased 14.4%, the more modest performance in 2011 translated into a correspondingly lower payout.”

According to Mr. Jarvis, “Another explanation for the dip in payouts may be a return to more accurate – or at least more optimistic – target-setting in 2011, coming off a sustained period when economic forecasting was difficult and consensus forecasts notably bearish.”

Long-term incentives contributed 53% of median total direct compensation for CFOs of S&P 500 companies in 2011. Increasing 7.7% to a median $1.57 million in 2011 (7.9% and $2.79 million, respectively, for the S&P 100) , they typically consist of multiple incentive vehicles with the most common combination a mix of stock options, restricted stock and performance awards (either in cash or shares).

Mercer’s analysis shows the prevalence of performance awards – granted as the only vehicle or in tandem with other vehicles – has risen markedly in the past three years, from 55% for CFOs of all S&P 500 companies in 2009 to 64% in 2011. The rise is even more pronounced for CFOs of S&P 100 companies, for which the prevalence increased from 59% in 2009 to 71% in 2011. By comparison, usage of stock options at S&P 500 companies declined from 74% to 72% and time-vesting restricted stock from 58% to 57%. The shift is more evident among S&P 100 companies for which the prevalence of stock options fell from 78% to 74% and time-vesting restricted stock from 59% to 55%.

“This realignment in the long-term incentive portfolio is not unique to CFOs, but reflects broad revisions that many companies are making in their compensation policies to address weaknesses exposed by the recent economic collapse,” said Mr. Jarvis. “Options and time-vesting restricted stock derive virtually all of their value from the market price of the underlying securities. Since the value of performance awards derives at least partially from non market-based measures, they’re better suited for an economic environment in which operational and other non stock-based performance metrics are deemed to be crucial indicators of a company’s long-term health.”

Mercer's analysis is derived from 2009 - 2011 data-year proxy statement disclosures filed with the Securities Exchange Commission by each company in the S&P 500. The constituents of the S&P 500 were determined on January 1, 2012.



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