Is Your CFO a Flight Risk?

Is Your CFO a Flight Risk?

Your chief financial officer holds a role of ever-increasing importance for your organization’s bottom line. Management consulting firm Russell Reynolds Associates Global CFO Turnover Index found that turnover for CFOs spiked in Q1 2024, on par with Q1 2021, a record year.

How sure are you that your CFO is secure, happy and productive as a member of your leadership team and isn’t taking a second look at their current compensation plan to see how it compares to what is being offered in the industry?

Why the CFO turnover? Over the past few years, the turnover rate for CFOs has risen with burnout, regulatory and interest rate pressures and performance and profitability challenges causing CFOs to reconsider their situations.

Increased merger and acquisition activity, change of control and the additional demands of the role are leading CFOs to contemplate changing industries, roles or retiring.

 

Non-Qualified Deferred Compensation Plans – A Key to CFO Retention

With the average retirement age being pushed out, the bigger picture should include saving for or funding retirement, reducing taxable income and closing the retirement income gap.

Competitive compensation solutions can be found in non-qualified deferred compensation (NQDC) plans. Customized NQDC plans can fulfill unique needs when building total compensation and reward packages for a CFO. The 2023 Principal® Trends in Nonqualified Deferred Compensation survey supports the idea that NQDC plans have a strong influence on the critical decision – should I stay, or should I go?

An NQDC plan can maximize benefits by providing:

• Deferred income and compensation without the regulations associated with qualified plans
• Additional savings and employer contributions when qualified contributions are maxed out
• Customized tax-deferred income
• Tax-deferred retirement savings
• Benefits in lieu of equity-based compensation

Plan options – like company-owned life insurance (COLI) –  provide revenue streams that can offset the cost of benefits. NQDC can apply to any specific industry or company size. It’s not relegated only to large publicly traded businesses.

 

CFO Turnover Spiked in Q1

The CFO job requires more than expertise in accounting. The tech industry, for example, recorded the highest CFO turnover since Q1 2022, where companies may be rethinking the CFO role and looking for someone with more strategic experience to help the firm’s growth and profitability.

Often viewed as the “number two” to the CEO, CFOs now need to understand technology and information management systems, customer markets, investments, compliance and regulation and have the communication skills to translate metrics and detail to the leadership team and the board.

Traditional accounting skills are important, but organizations see the CFO as a key member of the executive team, holding a vital place in the succession plan. The position now demands someone with strategic finance experience, someone who knows their way around capital management, liquidity, M&A and deal structuring, relationships with regulators, balance sheet positioning, capital deployment and working with institutional investors and communication skills.

“We helped a family-owned US-based engineering firm create a NQDC plan that was fully-funded, spanned the generations and provided leadership with the transparency they needed to understand the plan,” said Rich Pearson, Newcleus EVP, Chief Client Officer.  “We were able to address the fact that the CEO and CFO, in their early 40s, were the heirs apparent, and the owners wanted to be sure to retain these key individuals.”

“NQDC isn’t one and done,” said Flynt Gallagher, President Newcleus Compensation Advisors. “Market trends and peer competition change the rules, and compensation planning needs to be flexible and creative to address these fluctuations in market and generational  trends.”

 

Recruiting and Hiring a New CFO is Time Consuming and Expensive

 

At the end of 2023, the Russel Reynolds analysis found that CFO turnover reached 17.4%, slightly below a record high in 2021 with significant activity in the financial services and industrial and natural resources sectors.

• S&P 500 market slowed from its 2021 high
• Fortune 1000 turnover simultaneously increased from 17% to 19% in 2023, driven by increases in S&P MID CAP 400 and SMALL CAP 600 turnover

The data may also indicate that opportunities are opening for first-time CFOs looking to enhance their resumes and be lured away from smaller firms.

The right compensation plans provide increased employee satisfaction, retention and recruiting and you can future proof your compensation across the board with innovative strategies available through NQDC.

For details, and a personalized analysis of your compensation plans, contact Flynt Gallagher, President Compensation Advisors at fgallagher@newcleus.com, or Rich Pearson, Newcleus Chief Client Officer at rpearson@newcleus.com.