Sometimes, the unexpected is a really good thing. That’s certainly true for CFO compensation. Thanks to a surprise increase that pushed the stock market back toward pre-crash levels, along with remarkably robust corporate results, executive pay seems to have fared very nicely in 2010—a far cry from 2009, when the total compensation trajectory wobbled as it rose only slightly. Depending on performance, the upward trend should continue, while compensation components should look a lot more like the packages seen before the market meltdown.
“If I could fly a banner, it would read ‘return to tradition,’” says Randy Ramirez, Northeast practice leader for the compensation and benefits practice at BDO, a Chicago-based tax and financial services consulting firm.
Under Section 162(m) of the tax code, which caps the corporate deduction for executive pay at $1 million, boards can change performance goals if they’ve been set too low. For example, MeadWestvaco, a $6 billion packaging supplier in Richmond, Va., applied negative discretion when the company’s performance reached 200% of the goals, adjusting that to 175% of the target, according to Bowie.
That’s not to say all CFOs enjoyed increases. Timothy McLevish of Kraft Foods, for example, saw his compensation drop 23%, as his bonus declined from $2 million in 2009 to $665,000 in 2010, because the company’s North American unit failed to meet targets.
With the return to a more stable environment comes less reassessment of plan design, a big change from companies’ efforts to deal with a volatile market and slow growth by experimenting with shorter measurement periods and other changes. “I think we’re almost back to where we were before the crash,” Hall says.
Generally, compensation plans are more like the models of about three years ago, with a combination of goals based on company financial performance and individual objectives. That includes the usual suspects—base salary plus an annual bonus and long-term incentives measured over a period of three years. “We’re back to seeing simple programs,” Ramirez says.