Middle Market CEOs and CFOs See Jump in Pay

November 2018

Madeline O’Connor
Bliss Integrated Communication
(646) 576-4113
madeline@blissintegrated.com


BDO analysis shows correlation between variable pay compensation packages and financial performance

Chicago, IL – Middle-market company CEOs and CFOs received moderate pay increases during fiscal year 2017, according to the BDO 600: 2018 Study of CEO and CFO Compensation Practices of Middle Market Public Companies. CEO and CFO pay increased 4.4 percent and 4.5 percent, respectively, in 2017 from the year prior. CEO pay packages continue to heavily favor equity and long-term incentives (LTI), while CFO pay has a more balanced distribution between cash and long-term incentives.
 
2017 Average Compensation
 
Position Year Average Salary Bonus and Annual Incentives Stock Options Full -Value Stock Awards Other LTI TDC**
CEO 2017 $693,217 $822,804 $380,845 $2,013,934 $27,248 $3,938,048
2016 $683,072 $790,564 $340,262 $1,923,947 $32,493 $3,770,338
Change over Prior Year 1.5% 4.1% 11.9% 4.7% N/A* 4.4%
 
 
Position Year Average Salary Bonus and Annual Incentives Stock Options Full-Value Stock Awards Other LTI TDC**
CFO 2017 $400,381 $312,372 $108,490 $708,072 $6,087 $1,535,402
2016 $395,509 $298,016 $97,660 $670,101 $7,334 $1,468,620
Change over Prior Year 1.2% 4.8% 11.1% 5.7% N/A* 4.5%
 
*Because not all CEOs and CFOs received annual LTI payments, year-over-year comparisons many not accurately indicate market trends.
**Total Direct Compensation (TDC) is equal to base pay plus annual incentive plus annualized long-term incentive payments
 
Does Pay Influence Performance?
This year, BDO USA, LLP expanded its analysis to include an examination of the relationship between a CEO’s pay and their company’s financial performance. The analysis showed a correlation between compensation packages that emphasize variable pay (such as annual and long-term incentives) and improved financial performance. The correlation was more distinct at the industry-level than the aggregate level.
 
The strongest tie between CEO pay and financial performance was found among 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. “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 Pay Levels by Industry
 
 Industry 2017 CEO Pay 2016 CEO Pay 2017 CFO Pay 2016 CFO Pay
Energy $4,995,917 $4,271,056 $2,034,780 $1,944,062
Financial Services – Banking $838,260 $824,023 $402,151 $378,486
Financial Services - Non-Banking $4,086,148 $3,929,273 $1,411,685 $1,430,618
Healthcare $4,631,579 $4,589,657 $1,630,613 $1,585,340
Manufacturing $3,348,555 $3,620,759 $1,399,294 $1,380,378
Real Estate $5,232,665 $4,795,707 $2,096,697 $1,977,346
Retail $3,299,398 $3,043,102 $1,109,592 $1,072,680
Technology $5,311,656 $5,093,727 $2,187,925 $1,985,614
 
CEO and CFO compensation levels varied widely between industries. Technology company executives received the highest pay in 2017—total direct compensation packages averaged $5.3 million for CEOs and $2.2 million for CFOs. Executives working for financial services-banking companies were at the lowest end of the spectrum. The mix of the compensation is influenced by long-standing industry practices—cash made up 77 percent of the compensation mix for financial services-banking CEOs, whereas other industries offered a more balanced mix between cash and equity.  
 
Energy industry CEOs received the biggest year-over-year increase in pay, up 17 percent. The biggest pay bump among CFOs went to those in the technology field, up 10 percent.
 
“Explosive growth in the tech industry, combined with increased competition for executive talent, are likely strong influences behind the high pay levels for tech executives,” said Ziemba. “The jump in energy industry CEO pay aligns with a more positive outlook and improved cash flow for energy companies in 2017 after several years of belt tightening.”

It Pays to be a CEO in the Middle of the Pack
 
Company Size 2017 CEO Pay 2016 CEO Pay 2017 CFO Pay 2016 CFO Pay
$100 million - $500 million $2,480,144 $2,503,708 $1,008,536 $992,155
$500 million - $1.25 billion $4,176,918 $3,927,393 $1,532,331 $1,520,200
$1.25 billion - $3 billion $4,955,242 $4,966,755 $1,999,329 $1,911,280
 
CEOs and CFOs of the largest companies in the middle market continue to take home the biggest paychecks, but it was CEOs in the middle of the pack that experienced the biggest pay jump; their total direct pay rose 6 percent over the prior year, with significant increases in bonuses, annual incentive and full-value stock awards.
*Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.
 
About the BDO 600: 2018 Study of CEO and CFO Compensation Practices of Mid-Market Public Companies
The BDO 600: 2018 Study of CEO and CFO Compensation Practices of 600 Mid-Market Public Companies examined the compensation practices of publicly-traded companies in the energy, financial services–banking, financial services–nonbanking, healthcare, manufacturing, real estate, retail, and technology industries. Companies in the six non-financial service industries in our survey have annual revenues between $100 million and $3 billion. Companies in the two financial services industries in our survey have assets between $100 million and $6 billion. Data sources include data provided by Salary.com and public company data collected from proxies and other sources.
 
About BDO’s Compensation and Benefits Practice
BDO’s Compensation and Benefits practice offers an experienced and dedicated team of professionals who operate nationwide to seamlessly provide a comprehensive array of services to address client needs. The BDO team provides tax, accounting, and consulting services for all types of compensation arrangements, including cash and equity incentives, merger and acquisition related issues, employee stock purchase plans, qualified and nonqualified plan arrangements and other related services.
 
About BDO
BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, and advisory services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 60 offices and over 550 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 73,800 people working out of 1,500 offices across 162 countries.
 
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.