Download a copy of our 2022 CFO Compensation Survey Analysis below.
Private equity dealmaking hit an all-time high in 2021 rebounding from the COVID-19-induced slowdown in 2020. The outlook for 2022 M&A activity is overwhelmingly positive. However, persistent inflation attributed to government stimulus programs, rising demand, supply chain issues, and shifting labor dynamics may result in softening equity markets and higher cost of capital due to interest rate hikes in 2022.
Labor shortages abound, and, for the first time in decades, labor, rather than capital, is a growth inhibitor. Against this backdrop, the demand and competition amongst PE portfolio companies for highly skilled CFOs has intensified in an already tight labor market. Experienced PE CFOs who can profitably scale and integrate in an active M&A transaction environment are experiencing a seller’s market with multiple opportunities, including continuing in their current role towards a near term exit transaction.
As a result, we are seeing overall cash and equity compensation package expectations for middle market PE portfolio company CFOs increasing 5% to 10% from mid-2021. Add to this the increased desire for at least some form of remote work, and the bar has been raised as to the difficulty in recruiting the right portfolio company CFO who will execute on the strategic plan. In addition to a strong economic package, recruiting the right CFO requires properly positioning the role, the company and the opportunity to stand out from the pack.
During the course of our recruiting engagements, we gather compensation information for PE portfolio company CFOs nationally across broad industries and sizes of companies. From this information, we compiled compensation data from approximately 1,000 CFOs and summarized our findings into a survey included with this article as Exhibit 1 (See PDF link below). This survey provides summary salary and targeted incentive bonus as % of base salary data for CFOs in PE portfolio companies across a wide spectrum of revenue sizes, industries and geographic markets.
PE Portfolio Company CFO Compensation Structure: A PE portfolio company CFO compensation package typically comprises cash compensation consisting of base salary plus performance bonus and equity participation. Performance bonuses are typically structured as a % of base salary, based on company performance (EBITDA) combined with a smaller individual performance portion (e.g., MBO achievement).
The three foundational drivers of CFO cash compensation are:
- Size of business from a revenue standpoint – as companies scale, complexity as well as the importance as to strategic financial and operational management also scale;
- Industry – industries vary in complexities, those that are more complex require higher/different skillset in the CFO role; and
- Geographic location – cost of living varies by geographic region, and in some markets substantially. For example, $375K total cash compensation ($250K salary plus 40% bonus) in Tampa, FL is equivalent to approximately $500K ($357K salary plus 40% bonus) in San Diego, CA, whereas in Memphis, TN the equivalent is approximately $310K ($222K salary plus 40% bonus).
Other factors that impact cash compensation are specific as to the needs of the company’s CFO role such as depth of experience with M&A including taking a portfolio company through a successful exit, international experience and dealing with sophisticated capital markets.
Equity participation typically amounts to between 1% and 1.5% (+ or -) of fully diluted equity with vesting usually linked to a combination of time and achievement of company EBITDA/valuation targets. Experienced portfolio company CFOs often view the equity participation component as being more important than cash compensation and will be more flexible as to their cash requirements if they view the equity component as highly attractive.
Please free to reach out to us if you have any questions regarding this data or if we can provide you with benchmark cash compensation data for a CFO role within a specific portfolio company.