Good morning. Kevin Kelleher here filling in for Sheryl.
Private equity had a banner year in 2021, with deal value at PE firms rising 91% to $1.1 trillion. That heady pace of dealmaking has created intense demand for CFOs that can help right sometimes challenging financials at companies in PE portfolios.
But figuring out what to pay CFOs at PE-backed companies can itself be challenging. Installed CFOs are—along with CEOs and board chairs—instrumental in reshaping companies that PE firms buy. They need to execute on a specific vision, such as shepherding a company’s balance sheet and cash flow according to a new investment thesis. Often, that vision is dictated by the PE investors.
Heidrick & Struggles released this morning its 2022 compensation report for CFOs at PE-backed companies. The executive-search firm surveyed 656 senior financial officers, 56% of which had more than a decade’s worth of experience as CFO with 22% having a decade or more at PE firms under their belt.
The median CFO salary in the survey saw base compensation at $313,000 and bonuses at $125,000. Equity compensation, meanwhile, came in at a median $1.45 million for the 73% of U.S. respondents who received such a package.
“We’re seeing equity compensation is down and cash compensation is up. From a recruiting perspective, companies have needed to adjust to the competitive nature of the market,” Elizabeth Simpson, a partner at Heidrick & Struggles, tells me. “The market has just become much more competitive over the last couple of years for CFO talent.”
Compensation varied by company revenue, with more pay going to bigger than smaller ones, as well as by industry. Median compensation was highest for the technology sector, followed by energy and business services. Equity compensation, meanwhile, was most generous in consumer companies, followed by tech and financial services, Heidrick found.
PE portfolios may not be as transparent as publicly traded companies, but these companies employ nearly 12 million workers and generate around 7% of U.S. GDP, according to the American Investment Council. After several years of boom times, a slowing economy and rising interest rates are shifting the landscape for the industry. On the one hand, borrowing to finance buyouts could become more costly. On the other, struggling targets in need of a turnaround are likely to become more commonplace.
“The PE deal pipeline continues to be robust, and volatility contributes to that,” Simpson says. “And that volatility can shift the CFO market. Some companies may look to restructure, so the CFOs may need a different skill set.”
In general, a CFO at PE-backed companies will need the standard skill set of any good senior financial executive: leadership skills to mentor and motivate others, a solid finance background, and strong operational and strategic management. Inside PE companies, CFOs may also need to be more hands on, with the agility to translate the fund’s financial goals and ensure smooth communication between the board and employees to make those goals a reality.
While many CFOs working with PE funds have experience inside that industry, “public company training is actually very valuable for these roles,” Simpson says. “The ideal candidate transitioning into a group level CFO role might have had public company experience in a senior leadership role.”
In general, CFOs have not been immune to the effects of the Great Resignation, with 70% of C-suite executives mulling a job transition in the wake of the COVID-19 pandemic. “There’s already unbelievable competition for CFO talent, and the Great Resignation has added to that,” Simpson says.
That should keep demand for CFOs, at both PE-backed companies and in general, firm for the near future, even if it’s not as overheated as it was in earlier years. “CFO candidates looking for another position still have two or three competing job offers,” Simpson says.
See you tomorrow.
One month into the season for second-quarter earnings, the winners and losers of 2022 are becoming more clear. With 56% of S&P 500 companies reporting results so far, 73% of them saw a positive EPS surprise while 66% disclosed a positive revenue surprise, according to Factset. Guidance is mixed, with Energy and utilities estimating EPS gains of 8.1% and 2.1%, respectively. Communications services are bracing for a 5.5% drop in EPS this year, followed by materials (down 2.6%) and consumer discretionary goods (down 2.1%).
Courtesy of Factset
As inflation continues to hover near a 40-year peak, Microsoft, Walmart, and other companies are giving raises to help retain employees, a Fortune report from Paige McGlauflin and Amber Burton noted. Some HR experts, however, caution leaders to keep a close eye on the already stubborn gender wage gap during this time. The pay gap between men and women in the U.S. was 22.1% last year, according to the Economic Policy Institute. That's down from 23% in 2020.
"The data shows that more environmental and social shareholder proposals were successful at annual meetings at the top-performing companies by total shareholder returns in the 12 months leading up to the vote. Furthermore, average support for environmental and social shareholder proposals was higher at the top-performing companies."
Governance company Diligent, which found that ESG proposals at corporate shareholder meetings are on the rise—although the vast majority of votes are still against them. Only around 1 in 4 proposals are getting “yes” votes, Diligence said in research prepared for Fortune.
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