The level of CFO pay, like most corporate roles, relates strongly to market capitalisation. That is, the bigger the company the higher the pay. On its own, market capitalisation explains more than half (56%) of the variability in total remuneration. Is there any other major factor that can account for CFO pay levels? While there are several other factors, one stands out.
The other factors that affect levels of remuneration are industry, individual performance and company performance. But Guerdon Associates also expected that being a company director would attract a remuneration premium. We analysed CFO data to establish whether or not there was a premium and to measure how large it is.
We extracted the remuneration disclosures for 207 CFOs from ASX 300 companies from GuerdonData® and combined it with company financial data from Aspect Huntley as at 12 February 2007.
Figure 1 below shows a predictive total remuneration line (in blue) for CFOs who have a seat at the board. Market capitalisation explains 67% of the variation in total remuneration in this group. The red line relates to CFOs who are not board members. For this group market capitalisation explains 58% of the variability in total remuneration.
There is clearly a premium being paid to CFOs for being a board member. The size of the premium becomes apparent when companies reach a market capitalisation of $500 million. Overall the premium is around 40%, but this varies with company size. We used a moving average for both total remuneration and market capitalisation to estimate the premium paid.
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