­

CFO Compensation Packages – What’s a CFO Worth?

The market for senior level finance talent is hot. This is especially true for small to middle market companies ($20mm to $100mm in annual revenue) across a range of industries to include technology, products, software, etc. I’m often asked by CFOs what their market value is, and how compensation packages vary with regards to base salary, bonus, equity, incentives, etc. Unfortunately, there is no short answer, and it depends on many variables. For non-financial service companies in this revenue range, we see salaries from $250k – $500k, bonuses from 25-50%+, and equity from 0-2% or more.

If you are exploring the market, negotiating an offer, or lobbying for a raise at your current job, here are some factors to consider:

  1. Size of Company — the size of the company can have a big impact on the compensation level for a CFO. $20-$50mm companies generally price CFOs in the NYC/Boston areas between $250k and $400k base salary. $50mm-$100mm companies will see that range increase by 10-20%. Bonuses can vary, but a 25%-50% bonus range is standard, with some compensation packages exceeding 50% bonus. As the revenue of the company increases, and finance team size grows, so does the cash compensation component for most CFOs.
  2. Stage of Company — where the company is in its life cycle plays a large role in the variability of equity compensation for CFOs. Earlier stage companies obviously have more ability to bring in CFOs with the lure of equity vs. a more established business. A CFO joining a hot startup company early on can sometimes get 1-2% of the total equity. An established company would typically fall into the .25%-.75% equity range. Turnaround and company sale situations are special circumstances, and the increased element of risk often demands a higher equity incentive.
  3. CFO Duties — what type of CFO you are can have a large impact on the structure of a compensation package. For simplification purposes, we’ll look at “outward facing CFOs”, those hired with a mandate to do things like fundraising, dealing with company Board of Directors, possible transactions, IPO, etc.; and “inward facing CFOs”, those hired for more general management of broad accounting and finance operations at the company. Outward facing CFOs are often able to negotiate more lucrative equity grants. Back end cash bonuses are also common for a successful fund raise, sale, etc. If a client retains us to find a CFO who will assist in outward facing activities, we are generally able to negotiate a change of control clause for a liquidity event, larger equity grants, or cash payouts based on predefined objectives related to their hire (i.e. payouts triggered by specific dollar value capital raise, sale of company, etc.). Inward facing CFOs aren’t likely to get a change of control clause, unless they were a founding member of the company. Compensation for internally facing CFOs is often determined by their years of experience and size of the company. Also noteworthy is that the modern CFO in a company below $100mm in revenue can often play a dual role of COO. If non-finance duties are included in a CFO job, base salary tends to increase slightly, say 5-15%.
  4. Contract vs. “At-Will” — if there is a contract, CFOs should carefully consider the terms, and the consideration given. Separation terms, severance agreements, and executive perks are all negotiable. An experienced attorney should review your employment contract. An attorney can also provide good bench marking advice on the contract’s relative fairness.

With the labor market tight, there is generally more inflationary pressure than not on compensation packages for CFOs. As a result, total compensation for CFOs doesn’t tend to vary too greatly among peer level CFOs.

 

Unintended Consequences of Salary Disclosure Laws – Why They Are Bad News For Applicants, Recruiters, and Employers

Salary-negotiation-job-interview

To address pay equity issues, New York City has joined 20+ other jurisdictions in implementing legislation aimed at prohibiting employers from obtaining salary history from applicants during the hiring process. On April 5, the New York City Council passed legislation outlawing salary history inquiries. The law takes effect on October 31, 2017. Once enacted, the new legislation will impose significant changes on the hiring process. The New York City law makes it an unlawful discriminatory practice for an employer to inquire about a prospective applicant’s salary history during all stages of the employment process. In addition, the bill would make it an unlawful discriminatory practice to rely on a job applicant’s salary history in determining the applicant’s salary, benefits or compensation.

While this law does have the noble intention of narrowing the wage gap between men and women, there are also some potential unintended consequences. These unintended consequences are particularly likely to happen to high wage, high skill workers, recruiters, and their employers. At best, this law will complicate the hiring process. At worse, it may adversely impact those it seeks to protect.

I write this from an executive recruiter perspective. In my 20 years of experience, the market sets predictable compensation levels for high demand talent, and there is rarely a huge degree of difference between what “Company A” and “Company B” pays. In the normal course of business, executive recruiters collect salary history for potential applicants. There are rarely instances where a potential applicant falls too far outside established salary norms. Obtaining this information up front helps the recruiter and potential employer benchmark the candidate, as well as manage expectations about a future offer.

By outlawing salary history inquiries, it becomes nearly impossible to advise candidates and clients on what is realistic or reasonable regarding candidate compensation. Employers will be put in a position where their offers will be a shot in the dark, versus the current system where salary and expectations are handled up front. This could lead to a lot of wasted interview time and effort by all parties because compensation is not aligned.

Job applicants are also potentially opening themselves up to earning less money due to the “back end” style of salary negotiation. Without having recent salary information on a potential applicant, it is very likely that companies will begin the negotiation process by making as low an offer as possible. Employers will have no incentive to make strong offers up front, as they risk paying more than they otherwise could. Candidates in turn are going to have to begin a negotiation process by fielding “low ball” offers, and will likely have contentious back-and-forth compensation discussions. Beginning a negotiation from the bottom of a range and working up is the exact opposite of how salary negotiations are currently handled. Under the current system, if an employer knows a candidate is currently earning $X, their initial offer is typically some increase above that current level. A good headhunter, or astute job seeker, can then determine if the offer is fair, or negotiate if the offer is not in line with market factors. If the starting point begins at the lowest possible number and works slowly up to what is minimally acceptable, strong talent risks leaving money on the table. In turn, employers will run a greater risk of losing good employees to companies with more aggressive offer practices.

The risk of miscommunication and misunderstanding also increases dramatically due to this law. People hear what they want to hear. If employers and executive recruiters are now put in a position where they will tell an applicant the salary range of the position up front, the candidate will likely fixate on the top of the range, while the employer is very likely to be focused on the bottom. Thus, when it comes time to negotiate the offer, the applicant and employer will likely be working from two very different starting points.

It’s important to note that our opinion comes from a very specific section of the employment market – low supply, high demand / high wage talent. There is strong evidence for serious wage gap problems in many sectors of the economy, and this law may very well improve those conditions in certain employment sectors. That said, as with any change, there are often unintended consequences.

By |October 5th, 2017|interview, Job Offers, job search|0 Comments