Woman CFO Leads in Compensation Ranking – Signal or Noise?

By Beth Senko

A number of articles recently touted the news that for the first time, the highest paid CFO in the country was a woman.

In its fourth annual survey of CFO total compensation, The Wall Street Journal/S&P Capital IQ study placed, not one, but two women in the top 10. The study measures who got paid the most including salary, bonuses, stock awards, option awards and other compensation. Oracle’s Safra Catz topped the list of highest paid CFOs of both men and women in 2013 with total compensation of $43.6 million. Former Accenture CFO Pamela Craig placed 8th with total compensation of $12.8 million. Craig retired in August 2013.Two other women made it to the top 20. Kinder Morgan’s Kimberly Allen Dang earned $10.4 million in 2013 while Morgan Stanley’s Ruth Porat took home $10.1 million.

A Crack in the Glass Ceiling – or a Statistical Vagary?
So do the 2013 numbers reflect, as the Wall Street Journal noted, “a crack in the glass ceiling?”

Firstly, we want to acknowledge that it is the first time a female executive has held the top spot since The Wall Street Journal started tracking CFO compensation four years ago. And well played to Ms. Catz for negotiating stock option grants which made up the bulk of her compensation in both 2012 and 2013. Technology stocks in a bull market were a great move as timing is everything! In 2013, Catz earned $950,000 in salary and $42.6 million in stock options. In 2012, her stock option package was $48.3 million. However, if the survey were run in 2008-09, most of Ms. Catz’s stock options would likely be out-of-the-money. So is it a representation of a crack in the glass ceiling or simply an example of Ms. Catz stock savvy appearing to inflate the results?

Stock options made up a significant portion of executive compensation in the late 1990s. The logic behind the grants was that option awards provided top management with an added incentive to boost share price – and therefore increase shareholder value. While a straightforward stock grant, whether restricted or not, also provides an incentive to boost stock performance, the effect is magnified in a stock option award. If, for example, a stock doubles in value during the year from $10 to $20, an option that starts trading at $2 might increase five-fold, ten-fold or more, during the same period.

In high-flying times, stock option supporters contend that executives should only be rewarded for the incremental value they create. Whereas a stock award loses a portion of its value if a stock price declines, the value of a stock option can easily become worthless if a company’s stock price declines. Critics of stock option awards point out that options focus on the future and do not reward executives for preserving company value and may contribute to short-term, risky behavior.

Therefore market conditions can significantly affect the rankings. The run-up in technology and media stocks in the past year may well explain why half of the highest paid CFOs in 2013 come from these sectors.

On a simple salary basis, Accenture’s Craig was the highest paid woman at $1.2 million, ranking 13th overall. Morgan Stanley’s Porat came in 20th using the same metric. Oracle’s Catz comes in 31st. So are we making progress or not?

The Bigger Picture
Like many surveys and rankings, the CFO compensation survey, the attention-grabbing headline of “Two Women Crack Top 10 in CFO Pay” certainly makes it seem like women are advancing. The question that really matters is pipeline; are we going to see parity in the next few years, four to five women in the top 10?

It’s quite possible if one looks at things from a big picture perspective. Women hold two positions of the top 10 highest paid and four of the top 20 highest paid according to the Wall Street Journal/Cap IQ survey – or 20% of the total. This is notable because women hold only 11% of the top CFO positions – so the rate of women in the highest paid roles is nearly twice that one would expect at this level.

The first step to achieving this is to work closer to parity in the overall CFO pipeline, and there we may be well underway. According to the same study, the number of women holding the CFO role rose 35% to 54, up from 40 the year earlier. If the percentage of women in the top finance positions continues to increase, parity in pay representation may not be too far in the distant future.

That’s if women don’t start moving to the CEO role first. Fortune Magazine counts 21 women CEOs at the top 500 companies – or a mere 4%. However, 15% of those women rose to the top job after spending time in the CFO role. Women still have a way to go to meet men in this statistic, Heidrick and Struggles estimate that 30% of male CEOs spent time as a CFO. So while the trend is not as well established for women as it is for men, the evidence suggests that this is a very viable path.

Headlines touting news of progress and cracks in the glass ceiling are exciting and encouraging. As with any news, critical examinations of what the statistics really mean are crucial to an accurate understanding. We applaud the women who have cracked the top 10 highest paid CFO’s, but now we look to the next 35% of women in the CFO pipeline that look to do the same. Their success or failure will be a truer indicator of the type and speed of progress we are making. Let’s hope to hear about their successes sooner rather than later.