Middle-market CFOs and CEOs get moderate pay boosts

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Pay increased for middle-market CEOs and CFOs by an average of nearly 5 percent in 2017, according to a new study by BDO USA.

The BDO 600: 2018 Study of CEO and CFO Compensation Practices of Middle Market Public Companies examined total direct compensation for middle-market executives in eight industries, looking at the correlation between CEO pay and company financial performance. The study found a correlation between compensation packages that emphasize variable pay, such as annual and long-term incentives, and improved financial performance. The correlation was more notable at the industry-level than the aggregate level.

The study found that CEO pay increased 4.4 percent and CFO pay went up 4.5 percent in 2017. CEO compensation packages continue to heavily favor equity and long-term incentives, while CFO pay depends on a more balanced distribution between cash and long-term incentives.

The strongest tie between CEO pay and financial performance was discovered at companies in the banking, manufacturing, technology and retail industries. Manufacturing companies that weighted CEO compensation packages more heavily with variable pay were associated with higher three-year total shareholder returns. Technology and retail companies with similar CEO compensation packages typically reported higher three-year revenue growth.

“A well-designed compensation plan ought to lead to better financial results, although critics point to the danger of being overly focused on the short-term,” said Tom Ziemba, a managing director in the Compensation and Benefits practice at BDO, in a statement. “It’s about finding the right balance. Executive pay plans need to include the right mix of targets to incentivize long-term growth and nonfinancial successes.”

CEO and CFO comp levels differed considerably between industries. Tech company executives received the highest pay in 2017, with total direct compensation packages averaging $5.3 million for CEOs and $2.2 million for CFOs. In contrast, execs at financial services and banking companies were at the low end of the spectrum. The mix of comp packages apparently influenced pay levels. Cash accounted for 77 percent of the compensation mix for financial services-banking CEOs, while other industries offered a more balanced mix between the two.

Energy industry CEOs saw the largest year-over-year increase in pay, climbing 17 percent. The largest pay boost among CFOs went to finance chiefs in the tech sector, up 10 percent. Stock awards tended to dominate the pay packages of CFOs across industries, followed by a combination of bonuses and annual incentives.

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Compensation Middle market Bonuses and incentives BDO BDO USA