Pay packages for finance chiefs are leaning more on results.
Performance-linked bonuses accounted for 59% of CFOs’ long-term incentives in 2017, according to a new study from Compensation Advisory Partners. That’s up from from 54% in 2016 and 46% in 2011.
Stock options, meanwhile, made up 17% of long-term bonuses in 2017, down from 32% in 2011. Time-vested restricted stock ticked up two percentage points to 24% during that period.
Executives tend to prefer performance-linked stock awards because they have a clear line of sight between current and target performance, said Kelly Malafis, one of the report’s authors and a founding partner at CAP. “They know what they need to do to get the incentive,” Ms. Malafis said.
For boards, linking pay to performance helps align management’s interests with those of shareholders, she said.
The shift in long-term incentive plans is also playing out with chief executives. Performance-based stock awards climbed to 63% of CEOs’ long-term incentives in 2017, the report said. That’s up from 57% in 2016 and 51% in 2011.
Time-vested shares remain a significant segment of long-term bonuses, even though that form of compensation is the least effective in prioritizing performance for managers, Ms. Malafis said.
With performance shares, managers must meet a target and may be rewarded more if they exceed it, she said. Time-vested shares simply require executives to stay in place. “You just have to be there.” Ms. Malafis said. “You don’t have to perform.”
The report covers 119 companies with median revenue of $13 billion that had no change in CEO or CFO incumbents in the past three years.
Long-term incentive plans comprised 59% of CFOs’ total compensation in 2017, up from 56% in 2011 the report said. Base salary accounted for 21% of the pay package, down from 22%, and bonuses accounted for 20%, down from 22%.