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Salaries of finance directors based on experience

Research indicates steady pay growth remains a non-issue for the vast majority of financial directors in 2018. But when it comes to bagging the best possible salary increase, experience is definitely key, writes Nash Riggins.

Although the global financial meltdown of 2008 finally appears to be well and truly over, wage growth across a variety of sectors is still fairly lacklustre.

The media has been littered with horror stories about stagnating pay packages that are consistently being outpaced by inflation, and political upheaval and business uncertainty surrounding the UK and Europe have stifled talent investment and wage growth for many professionals. Fortunately, that stagnation has yet to touch finance leaders – as long as those leaders have the right skills and experience.

That’s not to say wage growth hasn’t slowed for financial directors and CFOs over the last couple of years.

According to Financial Director’s 2016 salary survey, the compensation of financial chiefs at the UK’s biggest listed companies more than tripled between 2003 and 2015. CFOs operating across the FTSE 100 received an uplift of more than £600,000 in their total average pay year-over-year. Meanwhile, CFOs in the FTSE 250 enjoyed a raise of around £100,000 to reach an average £1.14m per year. That being said, it’s fair to say these figures certainly aren’t representative of the remuneration package a typical CFO or financial director should expect.

Jump ahead to the Robert Half 2019 Salary Guide, and researchers have since found the average salary of CFOs and group financial directors in the UK currently hovers at around £100,000 per year for those operating in the 50th percentile, with the salaries of those in the 75th and 95th percentiles respectively increasing to £120,000 and £260,000. Finance directors were earning slightly less, with the average UK-based FD bringing in £90,000. That average increased to £116,000 and £156,000 per annuum for those in the 75th and 95th percentiles.

Those UK packages are roughly in line with the Guide’s previous forecasts of a 4% hike for CFOs and 2.6% increase for financial directors over the last year, and don’t necessarily match the dramatic salary hikes FTSE 100 CFOs have enjoyed over the last decade. That said, the gradual climb in FD salaries continues to outpace those of typical UK workers, and it is also roughly on par with the global salary trends of other finance leaders.

According to the Association for Financial Professionals, American CFOs garnered the highest average base salary increase of any executive-tiered position in 2018, at 5.7%. That figure represented a rise from a base of $215,160 last year to $227,401 in 2018. Finance directors enjoyed a more modest increase of 3.7%, with average base salaries rising from $146,428 in 2017 to $151,879 in 2018.

Meanwhile, recruitment specialists Robert Walters found in their European Salary Report 2018 that particular markets such as Luxembourg countered these relatively mild increases last year with the most experienced CFOs posting salary growth of more than 9% base.

It’s also worth noting pay inevitably varies drastically based on sector. For example, in the USA, finance directors operating in technology services brought in an average base salary of $158,371 last year. On the flip side, FDs working in retail posted an average base salary of $135,938 in 2017 – while public sector finance directors earned a base of just $125,385.

Similarly, organisation size plays a huge role in determining salary. In 2017, a CFO working at a company that generates less than $100m in annual revenue could expect to earn an average base of $180,765. At an organisation with annual revenues of more than $1bn, the average CFO salary last year was $370,483. There’s a similar salary gap based on workforce size, too.

Now, it’s easy to get lost in a blackhole of statistics, but the key takeaway from this recent flurry of surveys and studies should be that finance leaders are indeed benefiting from rising salaries. More important still, and perhaps unsurprisingly, those remuneration packages increase dramatically based on the level of experience FDs are able to demonstrate.

In Belgium, for example, a finance director with 5-9 years’ experience can expect to bring in an average salary of up to €190,000. Meanwhile, an FD with more than 15 years’ experience currently earns an average base of €300,000. In the Netherlands, a typical financial director with under 9 years’ experience earns €80-110,000 per annum. If they’ve obtained more than 9 years’ experience, the average salary jumps up to €150,000.

According to Robert Half, these sizeable gaps are generally seen across the sector as a company’s primary retention tool. The recruitment firm reported last year that 51% of all executives surveyed were finding it difficult to fill top tier finance roles owing to a severe lack of experience available across the wider market. What’s more, three out of five firms surveyed said they thought demand was growing much quicker than supply.

But if firms are truly unable to find finance leaders with the breadth of experience they desire, then what sort of experience are they actually looking for in a CFO or financial director?

For big salary jumps, CFOs need to branch out

To gain a position as a CFO or FD, all candidates need to demonstrate a superior grasp of core competencies and skills. Those hard quantitative, business and strategic skills are expected to be gained through formal education – while accounting and finance credentials from the Association of Chartered Certified Accountants or the Chartered Financial Analyst Institute are becoming increasingly commonplace.

From there, recruitment firm Hays estimates 45% of the UK’s financial directors have more than 20 years’ post-qualification experience, while around one quarter qualified over 16 years ago – with a majority of those surveyed indicating they’re keen to obtain a CFO or CEO role in the near future.

Data from the 2018 AFP Compensation Survey Report indicates one of the most common ways in which finance professionals work to feed those ambitions and increase their potential for promotion to FD and CFO roles is to obtain an MBA – with 37% of professionals surveyed indicating they believed an MBA was key to their career advancement and ultimate salary increase. Contributions to profitability and obtaining a CPA license were also cited as key moves to help finance leaders develop the right experience to earn a top-tier salary.

In 2017, American finance leaders without an MBA earned an average of $13,000 less than their counterparts who had already achieved the award – representing a 9% difference in annual average base salary at the executive level.

Similarly, the average CFO earned a 20% higher base salary in 2017 if they possessed an FP&A certification. FDs earned 12% more if they had obtained the certification.

However, the road to a higher salary doesn’t stop at qualifications for ambitious FDs. Companies and recruiters are increasingly on the lookout for finance leaders with experiences outside of their respective organisation, market or even industry.

According to the Bronzegate 2018 FTSE 100 CFO Analysis, 40% of top-tier CFOs currently operating at board level were appointed from within their respective organisation. Yet recruiters are quick to point out that the most attractive candidates who are worth high investment can bring ideas to the table that do not necessarily conform to an organisation’s typical processes.

That’s why experience as a non-executive director (NED) is rapidly growing to become one of the most attractive attributes in a CFO candidate, inevitably equating to larger salary expectations.

By serving as a NED, finance leaders are able to gain invaluable insights from being able to observe starkly contrasting business environments in a variety of scenarios. Non-executive experience enables FDs to take a back-seat in assisting other firms overcome their organisational challenges, which they can subsequently learn from and apply in their own business environment.

The ability to soak up new ways of thinking, varied leadership approaches and new ideas makes candidates with NED experience far more likely to obtain a bigger role with a higher salary increase.

Similarly, another way in which finance directors are increasingly able to stand out and garner larger salaries has been to obtain experience working overseas. In one recent survey, researchers at Hays found that only 37% of UK FDs had experience working abroad. Yet of those finance directors who had obtained overseas experience, 93% said the experience had dramatically improved their career trajectory.

Increasing worth

No two organisations are alike – and so different firms are going to be on the hunt for different experiences and skillsets they’ll be expecting from their ideal FD or CFO candidate. This holds true for both internal and external candidates, and also for incumbents who are looking to increase their worth and subsequently earn a significant salary increase.

By gaining new perspectives through a NED appointment, going back to school in order to obtain new qualifications, or simply digging in and putting in the time, a flurry of statistics indicate that steady pay growth is still on the horizon for finance leaders operating across a variety of industries and markets.

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