Experienced finance chiefs are winning their own talent wars and more cash-rich compensation packages as mega-cap companies are finding creative ways to land veteran CFOs, executive search experts say.
Many CFOs considering new jobs are enjoying a strong negotiating position thanks in part to a record level of initial public offerings last year that's stretched demand for executives with public company experience. At the same time, supply is also constrained as some executives who have led their firms through the volatility of the early pandemic are exiting via early retirements, according to Josh Crist, co-managing partner at executive search firm Crist|Kolder Associates.
“There’s a dearth of CFO talent in the mega-caps and you need to buy these people out,” Crist said.
For instance, cash signing bonuses have long been a buy-out tool but they do appear to be getting larger and they are often being paid out more quickly than the 12-24 months after executives take their seats that had historically been more common, Crist said. More executives are now getting the payouts immediately or within months, Crist says.
Cash is king
Pfizer earlier this month announced that David Denton would be leaving his post as CFO of Lowe’s Companies Inc. to become the pharmaceutical company’s CFO and executive vice president, effective May 2. As part of Denton’s compensation package that includes an annual base salary of $1.25 million, Denton will also receive a one-time cash payment of $5 million within 30 days of his effective date, according to an SEC filing.
The bonus, along with an equity grant of restricted stock with a value of about $3.25 million and a credit valued at $9.65 million under the Pfizer Supplemental Savings Plan, will “replace certain compensation and benefits that are expected to be forfeited by Mr. Denton due to his resignation from Lowe’s,” according to the filing.
Also earlier this month Walmart announced its appointment of John Rainey, who has served as CFO of PayPal Holdings, as the retailing giant’s new CFO and executive vice president, effective June 6. Rainey’s compensation package includes a $5 million signing bonus payable six months after he starts work at the company, but if he resigns or is terminated in the three years after the bonus payment the company would be entitled to recover all or a portion of the signing bonus, according to an SEC filing.
Robert Lamp, a senior client partner in executive search firm Korn Ferry's CFO practice, said he has not seen a shift in the timing of the cash payouts but he is seeing an increasing use of cash as part of the mix in compensation packages.
While the reason for cash sign-on bonuses can vary from representing a buyout of accrued bonuses, cash in lieu of unvested equity, or simply being an added attraction, some of the mega-cap CFO hires with aggressive upfront cash bonuses reflect a shift by companies to using more cash than stock to buy a CFO out of multi-year unvested equity-based bonuses that they would be leaving behind if they depart for another company, Lamp said.
"Historically, that's been an equity for equity trade," he said. "Now what we're seeing is some companies using cash more aggressively as a portion of that buy out."
The unprecedented demand for CFOs is driving the highest business volume Lamp has seen in his nine years at Korn Ferry. With that brisk demand for CFOs, he's seeing companies using "every tool at their disposal to land preferred targets," including cash inducements through upfront cash signing bonuses that sweeten the deal, he said.
The increased use of cash over equity in compensation packages is a sign that CFOs are in demand as companies would typically rather give equity, he said. "If candidates are driving more cash-heavy packages it means there's a demand for talent and that someone else would do it if [one hiring company] didn't," he said, adding that executives may be pushing for more cash given the current volatility in the market.
Walmart did not immediately respond to a request for comment. A Pfizer spokesperson did not immediately comment further on Denton's compensation beyond the information available in the SEC filing.