Most US financial executives got a pay bump during the past year, and their raises got a little bigger—a sign that companies are more bullish about the economy, new research on executive compensation indicates.
Seventy-four per cent of financial executives said they received salary increases in the past year, according to the 2012 Financial Executives Compensation Survey, which was released by the Financial Executives Research Foundation and Grant Thornton. That’s up from 66% reporting raises in the 2011 survey and 43% in the 2010 edition.
The estimated average salary increase was 4%, up from 3% in the 2011 report. Public companies awarded higher increases than private companies, the research shows.
The sixth annual survey reports on salaries, bonuses, long-term incentives and retirement benefits of CFOs, corporate controllers, treasurers and other financial executives in the US among public and private companies. Nearly half of the 714 respondents, who were surveyed via email between December and January, were CFOs.
“Executive compensation programmes across all types of organisations continue to evolve in response to factors such as the economic and political climate, increased scrutiny by shareholders and the media, and compliance-driven increases in programme transparency,” Marie Hollein, CEO of Financial Executives International, said in a press release. “The findings from this year’s survey are reflective of slight improvements in the economy, resulting in a loosening in compensation restraints.”
Among the findings in the 2012 report:
“Pressure is increasing on officer performance management processes and performance tied to pay,” Ken Cameron, a director in Grant Thornton’s compensation and benefits consulting practice, said in a press release. “In response, organisations are making programmatic changes such as increasing the use of performance shares and applying more rigourous incentive goal-setting methodologies.”
Executives turned off by complexity
At the same time, such methods might be a turn-off to some executives. In many cases, executives would rather be paid a smaller salary in a more predictable and less complex form, according to the Psychology of Incentives, a study by PwC and the London School of Economics and Political Science.
More of the 1,100 respondents (51% vs. 27%) favoured a cash plan based on profit targets that they understand over a more ambiguous plan based on their company’s share price relative to other companies.
“Complex pay plans are a motivation killer,” Tom Gosling, head of PwC’s reward practice, said in a press release. “The more complex the pay, the lower the value in executives’ eyes. … We need to simplify pay significantly. We’ve tried to put too much of the package into complex incentives that executives don’t value, and this is leading to volatility of pay-outs and unintended consequences.
“If we had simpler, less volatile pay plans, then most executives would be happy to be paid less.”
Not just rising in the US
US financial professionals aren’t the only ones getting pay bumps, according to Robert Half International, a staffing firm that tracks salary ranges for financial executives globally. Here’s what the company found between 2011 and 2012:
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