June 10, 2015
In a recent post, we looked at changes in CEO pay in the S&P 1500 and how that compares to the average worker. While the CEO is typically a company’s highest paid and most high-profile employee, they are but one member of the executive team. Using Equilar’s database, we can examine whether CEOs have been uniquely well-compensated over the past several years or if that trend is part of a broader increase in the pay of high-level executives. SEC regulations require all companies to disclose both CEO and CFO compensation information in their proxy filings, and studying the pay dynamic between the two can act as a proxy for broader trends in executive compensation.
Over the past eight years, the median CFO in the S&P 1500 has seen a pay increase of 49% after adjusting for inflation. While that’s significant growth, it doesn’t quite match the 56% increase enjoyed by CEOs over the same time period. This has resulted in a slight uptick in the ratio of median CEO pay to CFO pay from 2.71 in 2007 to 2.82 in 2014.
The overall numbers, however, obscure differences between the constituent indices of the S&P 1500. Increases in CFO pay have generally followed the same pattern as CEO pay, where the largest percentage gains came from S&P 400 MidCap and S&P 600 SmallCap companies. The variability between indices was not as large for CFOs as it was for CEOs, however, and S&P 500 CFOs actually experienced a larger percentage increase in pay than their CEO colleagues. Despite these relative gains, the ratio between CEO and CFO compensation remained highest at S&P 500 firms.
CEO pay is more dependent on incentive plans and equity compensation than CFO pay is—only 21% of CEO compensation in 2013 came in the form of a base salary, versus 29% for CFOs. Because of this, an improvement in economic conditions should benefit CEOs more than CFOs, and indeed, the difference in pay growth during the economic recovery has been significant. Over the five years since market bottom in 2009, real median pay grew at an annual rate of 9.4% for CEOs and 7.9% for CFOs.
Despite these pay increases, CEOs and CFOs have been taking home a decreasing portion of company profits. In 2014, the median S&P 1500 CEO received compensation representing 4% of median net income, while the median CFO received 1.4%. Those percentages have been trending downward since 2009 and are presently at the same level as 2007. This measure contains significant variation by company size, with CEOs and CFOs of S&P 500 companies receiving 1.2% and 0.4%, respectively, compared to 7.7% and 2.9% at S&P 600 firms.