The demand for highly skilled CFOs for PE portfolio companies remains high and the market for those with a track record of success in PE portfolio environments is very competitive. The CFO role continues its evolution from primarily ensuring the integrity of financial and operational reporting to value add business and strategic partner with the CEO and the PE firm. CFOs who possess the right skills to be successful in PE portfolio environments are usually ranked in the upper quartile amongst their peer group as to talent as well as their targeted compensation needs.
PE portfolio company CFO compensation packages typically comprise of cash compensation consisting of base salary plus performance bonus (usually a % of base salary) and equity participation. The three foundational drivers of CFO cash compensation are:
(1) 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;
(2) industry – industries vary in complexities and those that are more complex require higher/different skillset in the CFO role; and
(3) geographic location – cost of living varies by geographic region, and in some markets substantially. For example, $350K 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, stage in life cycle of PE holding period, 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 many times 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.
During the course of our executive search 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 more than 500 CFOs and summarized our findings into a survey included with this article (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. 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.
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.