CEO pay higher after CEO hires CFO

The job of chief executive officer appears to pay better when an incumbent CEO hires a new CFO.

Researchers at Duke University studied more than 23 years of S&P 1500 company data. They found that CEOs took home an average of 10% more remuneration when working with a CFO who was hired after them..

The study provides quantifiable insights into a phenomenon that is difficult to document: the influence CEOs have on colleagues who could potentially increase their pay.

Previous research has shown that CEOs may exert influence up the chain of command on a co-opted board. Specifically, when newly appointed board members work with an incumbent CEO, the board’s oversight is also weaker and CEO remuneration is as much as 20% higher, the research notes.

The study looks at what happens working in the opposite direction, down the chain of command, when CEOs strongly inluencing their CFOs.

With CEOs in the study earning a median pay package of $3.19 million a year, a 10% premium for incumbents was more than $300,000, compared to those working with finance chiefs hired by their predecessors.

CEOs were most likely to see the higher pay during the first three years of the new CFO’s tenure, when the CFO may have been most amenable to the boss’s influence.

The researchers used nearly 18,000 data points from 1993 to 2015 to illustrate an association between co-opted CFOs and CEO remuneration. The data indicated that such CFOs helped companies achieve analyst-based earnings targets through reporting better “underlying” earnings figures.

The research indicates that it is important that boards and their nomination committees be aware that this dynamic between the CEO and CFO exists, and to consider that when hiring and overseeing these positions.

See the research article HERE .

© Guerdon Associates 2024
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