CFOs exceed frequency of CEO retention bonuses
- CFOs took a larger share (21%) of retention bonuses awarded to named executives in the five-year period to 2021 compared to CEOs who received 13% in the period, according to a Willis Towers Watson (WTW) survey of public filings of 1,433 S&P 1500 companies.
- However, the size of retention bonuses awarded to CFOs was significantly lower than that awarded to CEOs, according to the report. The median CFO retention bonus value for 2021 was 154% of base salary compared to 261% for CEOs. .
- According to Robert Newbury, senior director of WTW and one of the report’s authors, the details come as the length of time award structures require CFOs and others to stay at their companies to get the payouts has shrunk. Retention periods now range from three to four years, up from four to five years previously, he said.
Overview of the dive:
Companies are handing CFOs a significant portion of retention bonuses as the number of CFOs leaving their jobs is on the rise. The percentage of S&P 500 companies with a CFO turnover rose to 18% last year from 2020.
While retention bonuses have been in place for decades to prevent executives from running away early, Newbury said the study indicates bonuses are being structured in new ways that give executives faster access to rewards. than previously.
Instead of getting the rewards in lump sums at the end of the award period, so-called assessable vesting in which portions of the award value are delivered each year or on a timed basis throughout the retention period are more common, he said.
“People aren’t going to want to go for five years without getting any benefits in the meantime,” Newbury said in an interview.
Almost two-thirds or 65% of rewards were distributed over time last year, up from 45% in 2018, according to the study. The change comes even as there are cross-currents in which more boards are requiring retention bonuses to be tied to some form of performance measurement. Performance-based rewards were included in 33% of retention packages, an increase from 23% in 2020.
The move to shorter retention bonus periods comes as companies face a tight labor market and expand employee training, providing flexibility in the workplace and increasing both the amount and frequency of salary increases.