One question I get pretty often from people starting in Finance as a career is how much does a CFO get paid, and how do you make sure you are getting enough. In many ways, that is a very puzzling question to me. In a US-listed public company (not a foreign private issuer), executive pay is public and normally can be found in the proxy statement that is filed annually. So it is no secret what CFOs get paid, everything is laid out in their contract (material contract and a copy is filed with the SEC) plus broken down in some detail in the proxy statement.
These are my general rules on pay and they really apply to every position, not just CFO, but I will use CFO as my example.
No one will take care of your pay except for you and you will only get what you negotiate for. Hoping that you’re doing a good job and that the pay will just be adjusted accordingly is a false hope. You need to be your own advocate here. Maybe your boss needs to carry it to the compensation committee. Maybe the head of HR needs to go argue on your behalf with your boss. Whatever the case, if you are not making sure that more pay is needed, chances are good that nothing special will happen.
The best and only clear time to negotiate is before you accept the job during the hiring process. Once you are on board, it will become much harder. You need to know what a fair price for the position is. You need to know what you would accept to take the job. You need to negotiate for that up front. Some negotiation is not only expected, if you do not, it may hurt their perception of you as a good Finance leader as they may wonder what you will do as CFO.
Most companies are not interested in hiring a leader that is too mercenary and you run a risk of being too demanding and setting yourself up to fail from the very beginning. This needs to balance with the point above about the best time to negotiate is when you are being hired. It is my view that there is more to life than being paid cash and the opportunity to learn and to work with a good team is important. I also do not get paid as much as some of my peers and their setting a higher bar up front never seemed to hurt them, so I might be wrong there.
There are a few immediate sources of what pay you should be expecting. The first is the proxy statements of the hiring company and its peers. Look at what the CFO you are replacing received. Look at what peers or companies of similar size and complexity are getting paid. That will set a baseline. The second source is the recruiter that approached you (assuming that is how you heard of the opportunity). You need to keep in mind that their client is the hiring company, but they also play a role in setting the right expectations with the company. Don’t be afraid to be upfront with what you are making now, they deal with attracting talent as a living, they are used to that type of discussion. If what you want is too much, they will tell you. If you are asking for too little, then you did not do your homework and maybe lack some confidence.
Once you are set on the base salary, you need to make sure the bonus is appropriate. The same two sources you used for salary are good for this as well. You should not only focus on the base bonus, you need to understand when it will be paid and in what circumstances it will be larger than base. My normal expectation is that by working hard, 80% of base bonus should be very achievable. As I have worked in several turnarounds, there have been years when no bonus was paid. Again, it might be somewhat of a failing in my views as I have always accepted the same targets as the other team members when I have started. Quite often the company is having a bad year and that is why they are changing CFOs and that approach means zero bonus for me as that is what the existing team is getting. It is not uncommon to negotiate for a set bonus for the first year. In many cases you would earn a good one if you stayed where you are and part of recruitment is overcoming such obstacles, so the hiring company often will make you whole.
The final “pay” part is the equity you will receive. This is a question of how much the initial amount is, what can you expect on an annual basis and will you receive stock options or restricted share units. You certainly should try to be made whole for whatever you would give up to join the new company. You probably cannot replace the vesting, but the value should be on the table for negotiation. Annual grants are important. Over time, your base pay and your bonus will help to let you pay your mortgage, pay for your kids to go to school and save for retirement, but it is unlikely to change your life. Stock compensation can change your life.
The normal choice between RSU and Options is certainty versus upside. You really cannot control the overall stock market and there always is a risk that you do well but the stock cannot perform well because of general market conditions. In that case, RSU are much better as payment, even if smaller, is at least going to happen. Sometimes you are not doing all that well but the market takes off and your stock moves with it. In that case, Options end up much better.
In the long run, as a responsible CFO you should tend to prefer RSU as dilution is smaller and expenses are more certain and predictable. For pay, if the company is stable and growing then RSU will give you certain return. If you are doing a turnaround and you want the biggest pay you can get, then Options have the most possibility.
One smaller item to consider is retirement savings. I am sure that you will save the most you can into the 401(k), so any matching is a plus. You also need to understand if the plan is top heavy and what happens if executives cannot save via the plan.
The pay factors to consider do not end with salary, bonus and equity. Pay attention to the complete package and the contract they are offering you. Vacation time is important. You do not want to have a seniority-based system where you start with one or two weeks like any other new employee and only increase the longer you are there. Clauses like this tend to be boilerplate and the same for all new hires and you need to pay attention to it.
You also need to pay attention to the severance clauses. In the USA, at will contracts are typical. So you need some protection if you are let go without cause. It takes a while to find a senior management job and you should negotiate a buffer. Look at what the comparable are as in all other pay items, but 6 months is about as little as I would accept and one year is not unusual. Change of control clauses are usually somewhat linked to severance clauses. Make sure you understand what the standard equity programs give all participants if there is a change of control. If your equity does not vest on change of control, then try to at least have it vest if you are let go as a result of a change of control. If your company is being bought they probably do not need another CFO and you are likely to be let go. So make sure you are protected here.
Make sure there is a clear “Good Reason” clause in your contract that would be triggered and your severance pay become due for several usual circumstances. For example, a forced move over 50 miles because your place of employment is changing, a drop it title or responsibility or a drop in pay, all of these are typical “good reason” clauses and you should make sure that you are protected.
Your contract will probably contain many clauses restricting your ability to compete if you leave, stopping you from hiring co-workers, making anything invented while you are there company property and defining what is considered to be confidential information. Many of these are boilerplate and in most employment contracts for the new employees of the company. Make sure that the requests are reasonable.
Finally, look at miscellaneous items like travel policies, restrictions on you being a Board member at another company and other anti- “moonlighting” clauses.
You would be well served to have a lawyer, especially a lawyer experienced working with employment law and employment contracts review your contract before you sign. Make sure you understand what you are being asked to sign and that it is worded properly so that you are protected.
That really is all the top level advice I have on CFO pay. Knowing what the market price and standard terms and conditions are is the most important. The rest will come down to your ability and just how attractive you really are to the company trying to hire you.