CFOs, Senior Executives Could See Smaller Increases in Bonus Pay

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Scrutiny of performance targets and tougher economic conditions could weigh on cash bonuses this year, advisers say

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The median bonus for CFOs at companies in the S&P 500 rose 42% in 2021 from a year earlier, to just over $1 million, according to the advisory firm Mercer, which analyzed proxy filings of companies whose CFOs held their roles in both 2020 and 2021 .Total compensation rose 17%, to $4.5 million at the median, Mercer said. Meanwhile, median cash bonuses for chief executives who served in both years rose 35% in 2021 from a year earlier, to $2.9 million. Total compensation for CEOs increased 13%, to $14.1 million at the median, Mercer said.

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“The question mark is going to be the bonus payouts,” said Robert Newbury, senior director at advisory firm Willis Towers Watson PLC, discussing the outlook for executive pay in 2022. Companies disclose financial details about executive compensation—including the math behind their annual bonus payouts—in their annual proxy statements, which are usually filed following the end of their fiscal year.

Companies over the past two years revamped cash bonus plans, scrapping performance targets in 2020 after they became obsolete because of virus-related lockdowns. Last year, many businesses set conservative performance targets that they ended up significantly outperforming, resulting in higher annual bonuses. Now, two years into the pandemic, companies have more predictable financial forecasts to rely on to set their performance targets.

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The US economy shrank during the first quarter as a result of ongoing supply disruptions, the first time that has happened since the spring of 2020. Some companies, after implementing price increases over the past year to offset rising inflation, have also recently reported lower consumer demand. Additionally, ongoing lockdown measures in China aimed at stemming the spread of Covid-19 threaten to weigh on global economic growth.

Total median compensation—which includes salary, bonus and stock awards—for chief financial and executive officers in 2021 climbed across major US stock indexes following a strong year for corporate earnings, according to ISS Corporate Solutions, an advisory unit of Institutional Shareholder Services Inc. CFOs last year earned total compensation that was about a third of what their bosses made, largely in line with historical averages, according to ISS data.

At many midsize companies, wide swings in bonus pay in 2021 meant that finance chiefs received smaller bumps in their compensation compared with their bosses, a reversal from the prior year. Chief executives are often eligible for larger payouts under annual incentive plans.

For instance, within the S&P 400 index, which includes midsize companies, CFOs earned $2.5 million in median compensation in 2021, or 10% more than a year earlier, ISS said. CEOs during the same period earned $7.9 million, or 20% more than a year earlier, ISS said.

That is a change from the prior year, when S&P 400 CFOs saw their median compensation increase of 4%, to $2.3 million, compared with 1% for CEOs, to $6.6 million. Median bonus pay in the S&P 400 last year rose 51% for CFOs, to $622,000, and 53% for CEOs, to $1.7 million, ISS said.

The same trend held true for finance chiefs at companies with smaller market capitalizations in the S&P 600 and the Russell 3000, excluding companies in the S&P 1500, ISS said. Vishay Intertechnology Inc.,

a Malvern, Penn.-based semiconductor company, and Terex Corp.

a Norwalk, Conn.-based cranes and machinery company, provide examples of the larger trend.

At Vishay, for instance, CFO Lori Lipcaman received a 12% increase in compensation in 2021 compared with a year earlier, earning $1.6 million. Chief Executive Gerald Paul, meanwhile, saw his pay jump 58%, to $8.4 million, boosted by a larger annual bonus payout. That was a switch from 2020, when Ms. Lipcaman’s pay rose 4%, while Mr. Paul’s fell 12%. The company didn’t respond to requests for comment.

Terex, meanwhile, said in an April proxy filing that its former CFO, John Sheehan, received a 25% increase in his 2021 compensation compared with a year earlier, to $3.7 million. CEO John Garrison received a 28% increase, largely because of annual incentive payouts, earning $9.5 million. During the prior year, Mr. Sheehan’s pay declined 8%, while Mr. Garrison’s pay declined 11%.

Mr. Sheehan retired from the company last month, succeeded by Julie Beck. Ms. Beck in her new role will earn an incentive bonus worth 75% of her $575,000 base salary, in addition to a sign-on stock grant worth $200,000, and a long-term incentive award of about $1.2 million, the company said in an October regulatory filing. The company declined to comment.

The slowdown in CFO compensation at many companies in 2021 largely stemmed from changes that companies made to executive compensation during the pandemic, said Brian Johnson, an executive director at ISS Corporate Solutions. Many companies in 2020 rewarded CFOs for managing their finances during a crisis, and trimmed CEO compensation to demonstrate solidarity with employees and shareholders during the early days of the pandemic, Mr. Johnson said.

Last year, after earnings rebounded across industries, many companies made an effort to square up with their top executives and boost their total pay.

Companies “want to get the CEOs back on track and have their pay aligned appropriately,” Mr. Johnson said. ISS expects total compensation for both CFOs and CEOs in 2022 to largely track each other, rising in the mid-single-digit percentage points, he said.

Write to Kristin Broughton at [email protected]


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