Recently we looked at how CFO remuneration may impact their time perspective on the job for CFO Magazine. The February edition contains our analysis of CFO pay from 2004 and 2005 for CFOs in ASX 300 companies.
Twenty-four percent of CFO remuneration was paid in the form of short-term incentives (STIs). This compares with 17% in long-term incentives (LTIs). Hence, the average CFO stands to earn significantly more in STIs than in LTIs.
The short term emphasis of the remuneration mix is further exacerbated by the fact that the average CFO’s tenure is 4.7 years (albeit that this was based on 2 years’ data). Over the average tenure, a CFO hitting target performance levels will receive an actual payout of 3 STIs and only 1 LTI (assuming 3 year vesting). So company career STI is worth over 4 times the LTI. And it does not take a CFO to work out that these numbers place a premium on getting short term results.
While shareholders may benefit in the short-term, their long-term interests may be less well served if the reward program does not encourage investment in future growth.
This conundrum for the board remuneration committee is resolvable. But space limitations mean that these methods need to wait until future issues.© Guerdon Associates 2021 Back to all articles