Knowledge Center: Publication
2020 Private Equity–Backed Chief Financial Officer Compensation Survey10/28/2020 Alyse D. Bodine, Susie Clements, Joseph Huddle, Todd R. Monti, Victoria S. Reese and Elizabeth P. Simpson
Welcome to our 2020 Private Equity–Backed Chief Financial Officer Compensation Survey, an analysis of compensation in both North America and Europe for this increasingly critical role. Together with our surveys of private equity investment and operating professionals around the world, these reports help to create a comprehensive picture of the compensation that key executives are currently receiving in a wide range of positions.
For this report, Heidrick & Struggles compiled compensation data from a survey of 656 senior financial officers in North America and Europe. While most carried the title of chief financial officer (CFO), the survey group also included top or lead financial executives with other titles. (See sidebar, “Methodology.”)
The watchdog for private equity investment
When a private equity (PE) firm acquires a company, one of the first three roles that the new owners usually look to reshape is that of the chief financial officer, with the others being chair and CEO. Typically, a PE firm has a new vision for the company and wants a trusted financial professional who can make its vision a reality. To shepherd the company’s balance sheet and cash flow according to the new investment thesis, PE firms typically seek CFOs who are closely aligned with them and have significant experience both in the CFO role and in working with a PE sponsor. Our survey found that 58% of CFOs have more than 25 years of experience, and 34% have more than 15 years of experience as a CFO or lead finance officer.
Demand for the role has been high, with deal volumes showing a recent uptick driving even greater demand. That is particularly true in the lower middle market, where PE firms are finding substantial opportunity. Given the opportunities for growth in these companies if they are put under the right strategy, ownership, and funding model, it is often worthwhile for a PE firm to pay a new CFO more than the previous owner would have in order to drive an anticipated greater value creation.
We expect demand for PE-experienced CFOs to continue to increase as market conditions change; with notable assets on the market facing challenges in the current climate, PE firms’ ability to acquire will increase, spiking demands for new, strong CFOs. This will combine with the ever-present reasons for sponsor-backed CFO turnover, such as the need for specific industry or technical skills such as listed company experience for a pre-IPO asset. Furthermore, our survey shows that 34% of respondents say their PE firm’s exit timeline has elongated by a year or more as a result of COVID-19, increasing concerns about retaining high-caliber CFOs across all sectors and sizes of companies, where, previously, shorter timelines or more lucrative equity were sufficient to hold them.
That said, for portfolio companies of all sizes, PE executives have often found themselves short of competitive information on topics such as CFO median cash compensation and median equity around the globe, in different sectors, and at companies of different sizes. The perspectives found through this survey should, we hope, prove to be helpful, as it includes information on companies both large and small and across all industries.
The median base compensation among the professionals surveyed for this report was $313,000, and the median bonus compensation was $150,000, for a total median cash compensation of $463,000. Base, bonus, and total cash compensation rise, as expected, by company size, and while nearly half of all CFOs said they did not receive equity as part of their compensation, our survey found that those who do can receive substantial amounts: in dollar terms, equity awards were valued at more than $100,000 for 47% of the respondents, with 22% getting equity above $1 million.
The CFOs of private equity–backed firms are long on experience, our survey shows: 58% have more than 25 years of experience. Most are in the United States, though nearly a quarter are in Europe.
Both North American and European respondents are highly experienced: 90% of the former and 83% of the latter have 20 or more years of professional experience, and 33% and 36%, respectively, have 15 or more years of experience as the senior financial executive. The figures showed similarly little variation by company size or industry.
Portfolio company demographics
Just over half of the companies covered by this survey have revenues of $250 million or less; the largest segment, 22%, comprises companies with revenues of $101 million to $250 million.
Digging deeper into industries shows the range of types of companies included.
As noted earlier, the median base compensation among the professionals surveyed for this report was $313,000, and the median bonus compensation was $150,000, for a total median cash compensation of $463,000. Looking by company size, base, bonus, and total cash compensation all rise as company size does, with total median cash compensation coming in at $613,000 at companies with revenues above $1 billion. Cash compensation is higher in North America than Europe, respondents report, and among industries, CFOs at healthcare and life sciences companies are paid the most, at $488,000 in median total cash compensation.
Forty-seven percent of professionals receive no equity as part of their compensation; that share rises to 65% among survey respondents in Europe. On the flip side, CFOs at technology companies most often receive at least some equity—68% do so. Among all CFOs who do receive equity, 40% receive 2% or less, and just 5% receive more than 3%. In dollar terms, that can be a substantial difference.
It’s also notable that the shares of CFOs reporting equity grants of $1 million or more were higher at the smallest companies, where cash compensation is lower. Of CFOs who receive equity at companies with $100 million or less in revenue, for example, 42% reported an equity grant of $1 million or more, compared with 24% of respondents receiving equity at companies with annual revenue of more than $1 billion. It seems likely that smaller companies, with smaller cash flows and less-certain business models, are seeking to attract and retain CFOs with a bet on the company’s longer-term success.
In an online survey fielded in July and August of this year, we asked participants to provide compensation data from 2019 for bonuses and 2020 for base compensation. All data collected is self-reported by CFOs and has been aggregated to evaluate trends in compensation packages, including base salary, bonus, and equity or long-term incentives.
All compensation figures in tables and charts are reported in USD thousands unless otherwise noted.
About the authors
Alyse Bodine (email@example.com) is co-managing partner of the Financial Officers Practice; she is based in Heidrick & Struggles’ Philadelphia office.
Susie Clements (firstname.lastname@example.org) is co-managing partner of the Financial Officers Practice; she is based in the London office.
Joseph Huddle (email@example.com) is a partner in the New York office and a member of the Industrial and Private Equity practices.
Todd Monti (firstname.lastname@example.org) is the global managing partner of the Private Equity Practice; he is based in the New York office.
Victoria Reese (email@example.com) is the head of the Legal, Risk, Compliance & Government Affairs Practice and leads the firm’s diversity and inclusion efforts; she is based in the New York office.
Elizabeth Simpson (firstname.lastname@example.org) is the partner-in-charge of the New York and Stamford offices and a member of the Financial Services and Financial Officers practices.
The authors wish to thank Anurag Dang for his contributions to this report.