When it comes to executive compensation, chief executive officers aren't the only ones in the million-dollar club.
A Tribune study of chief financial officers at the largest 25 publicly traded companies in Illinois showed that nearly half made more than $1 million in cash compensation last year, often with hundreds of thousands more in restricted stock and stock options.
The total of 11 CFOs with $1 million plus in cash pay could actually be higher. At eight companies, the CFO didn't rank among the five highest-paid executives, so the firms didn't have to disclose their compensation.
"You know in those eight instances they're not far behind the fifth-highest-paid guy," said Michael Kesner, principal in charge of Deloitte and Touche's executive compensation practice based in Chicago.
Including the value of stock grants, all 15 with full-year data available made at least $1.5 million, with most making nearly twice that--or more.
Experts say these pay levels aren't necessarily out of line, given the increasing responsibility CFOs have taken on, both in operating the company and in certifying its financials.
"Have we seen companies recognizing the enhanced role of the CFO? Absolutely," said John Bremen, Chicago compensation practice leader at consultants Watson Wyatt Worldwide. "Companies are recognizing that the CFO is a job that's of tremendous value to them."
Dan Hale, CFO at Northbrook-based insurer Allstate Corp., said the job has added responsibilities, particularly on compliance issues.
"I would think most CFOs would say they're underpaid, but so would anyone else who thinks they're doing a good job," he said. "In general, the market does a good job of setting the right compensation" for successful people.
Vinay Couto, a vice president at consulting firm Booz Allen Hamilton who has studied CFOs, said their role has changed dramatically in the past decade, from numbers-cruncher to a more activist strategic partner charged with helping the CEO set the company's agenda, drive growth and work more closely than ever with boards of directors.
Hale said CFOs have played a strategic role as a partner with CEOs for years, but added, "That has become even more important going forward."
More skills needed
Being a financial wizard is no longer sufficient, Couto said; CFOs must display strong interpersonal and leadership skills and help make strategic choices.
"The challenges are extraordinary," he said. "With stepped-up responsibilities, you would expect compensation to follow suit."
That's perhaps reflected in the size of awards given to CFOs at Illinois' top companies. For those CFOs in the job for two years, the median salary last year was nearly $540,000, up 6 percent from a year earlier; the median bonus was just over $500,000, up 16 percent; and the total cash median was roughly $1.3 million, up 9 percent.
"That's pretty standard fare" for companies that size, said James Fox of compensation consultants Fox Lawson & Associates. "Take a look at the past several years of events," with corporate scandals adding to the pressure on CFOs.
Cash, however, only makes up about half of CFO compensation. Stock grants also rose: Those who received restricted stock grants were awarded shares with a median value of more than $614,000, up slightly from the year before, while option grants had a median value of nearly $872,000, up 15 percent.
Lorraine Hack, executive director of search firm Russell Reynolds Associates' financial officers practice, said equity awards actually have been losing some of their attractiveness. They were more popular a few years back, she said, but the grants haven't necessarily paid off.
"That's not generally what's attracting CFOs," she said. "Cash is pretty much king at the moment."
Overall, the biggest package went to Motorola Inc. CFO David Devonshire, who had total cash pay of $1.9 million, plus options valued at more than $5.1 million.
Motorola spokeswoman Jennifer Weyrauch said Devonshire "has been instrumental in the company's performance," adding that the company has reduced its debt by $2.7 billion and "our balance sheet, with more than $5 billion in net cash, is the strongest it has been in our company's history."
Pay, she stressed, is based on individual performance and the need to be competitive with compensation at other large tech companies. She said Devonshire also was instrumental in the company's spinoff of its Freescale Semiconductor unit.
To many, higher pay reflects tougher realities.
A study by Russell Reynolds found turnover among CFOs in the Fortune 500 companies increased 23 percent in 2004, with resignations increasing 21 percent.
The job is something of a grind, Hack said, with pressure on CFOs to make the financial numbers each quarter along with complying with the new Sarbanes-Oxley requirements. In particular, there is Section 404, a costly, time-consuming provision that requires top management to examine and certify internal controls.
"It puts a lot of pressure on CFOs," she said. "We're hearing from CFOs that it's just not fun anymore."
Under Sarbanes, CFOs also must personally certify financial results, at the risk of a prison term if they knowingly sign off on false numbers. Pay increases, Bremen said, "reflect those additional levels of responsibility."
"Clearly, within the CFO job specifically, there are some unique trends due to the increased authority and responsibility under the Sarbanes-Oxley legislation," he said.
CFO data sketchy
National data for CFOs is sketchy, but a study by the Towers Perrin consultancy of pay for all proxy-level executives found salaries were up 5 percent last year, on average, with bonuses increasing 17 percent, and total cash up 11 percent. Long-term incentives rose 12 percent, and total compensation was up 11 percent.
Doug Friske, managing principal with Towers Perrin, said options are decreasing in emphasis, with restricted stock gaining in prominence.
"There's no question there's a shift, but it's more of an evolution than a revolution," he said. While some larger companies--like Microsoft, which eliminated stock options for employees--have made dramatic shifts in their compensation programs, he said, "the vast majority have been much slower to make change."
As with CEOs, companies are looking to implement pay-for-performance measures in their compensation packages for other high-ranking executives.
But, also as with CEOs, it's proving to be easier said than done.
"I think the challenge in the current economy is appropriate goal-setting," Bremen said. Companies, he said, use various metrics, including return on equity, free cash flow, operating profits and revenue growth to establish benchmarks, but setting the hurdles is tricky.
"These things are difficult enough to predict one year in advance--how about three years in advance, or five years?" Bremen said.
When they achieve short-term goals, though, they can show up in hefty bonuses. Eight of the 15 CFOs in the Tribune study with available full-year compensation data received bonuses of $500,000 or more.
Still trailing bosses
Despite the size of CFO paychecks, they still lag well behind their bosses.
"CEOs are still paid considerably more," Kesner said. "You're still going to see huge gaps between CEOs and the next level of executives."
Kesner said he doesn't see any movement afoot to close that gap. "They're getting paid huge bucks," he said.
Despite increasing demands on CFOs, Kesner and others said, compensation committees aren't putting more focus on compensation for their CFOs, in part because institutional investors aren't screaming about CFO pay.
Those major investors, he said, "only focus on CEOs. They don't look at anybody else."