CFO exit can result in a share drop of over 3% - research

In the ever-evolving world of corporate finance, the role of the CFO is becoming increasingly complex and demanding.

A new report by Datarails, titled CFOs and the C-Suite 2023, provides a comprehensive analysis of the current landscape, highlighting the challenges and opportunities that CFOs face in today’s dynamic business environment.

The report reveals that CEOs earn 2.8 times more than CFOs, with an average compensation of $9.74 million compared to $3.48 million for CFOs.

However, the gap is narrowing, with CFOs experiencing an average compensation increase of 1%, contrasting with a 6% decrease for CEOs during the same period. Despite this, CFOs still face challenging job security within the C-Suite, holding the role for an average of only 3.15 years in a five-year period.

“Despite the increasing responsibilities and strategic importance of the CFO role, there remains a significant disparity in compensation compared to other C-suite roles,” says Senad Karaahmetovic, a financial analyst at Investing.com.

“However, the narrowing gap indicates a growing recognition of the CFO’s value in driving business performance.”

The impact of CFO turnover

The report also highlights the impact of CFO turnover on company performance. It shows that stock prices experienced an immediate -1% drop the day after the CFO’s exit was announced. Over the next 30 days, these companies faced an additional -2% decline.

However, by the 180-day mark, stock prices had returned to their previous levels. This contrasts with the larger stock market losses experienced by companies when CEOs leave.

The report’s findings emphasize the importance of CFO stability to investors, reflecting in the stock market’s response to CFO changes. The initial negative reaction and gradual recovery suggest that investors initially perceive CFO departures as destabilising, but over time, adapt or respond positively to the company’s subsequent actions.

This contrasts with CEO departures, which tend to have a more pronounced and lasting impact on stock prices. It underscores the nuanced yet significant role CFOs play in maintaining investor confidence and company performance.

Report takeaways:

• CFOs in major US companies have the shortest average tenure in the C-Suite, at 3.51 years.
• Despite job instability, CFO compensation has significantly increased, averaging $3.5 million in 2021.
• There’s a notable high turnover rate among CFOs, especially in the retail sector.
• The remuneration of CFOs is increasingly based on stock awards.
• CFOs face challenges such as economic pressures and the need for technological advancements in finance.
• These challenges may contribute to the high turnover rates of CFOs.

2024 and beyond

Looking ahead, the report suggests that CFOs will continue to face significant challenges in 2023. Economic factors such as persistent inflation and potential recession are likely to impact CFO staying power and pay.

Moreover, the report highlights the need for investment in financial planning and analysis (FP&A) and information technology (IT) capabilities to help CFOs navigate these challenges.

The report “CFOs and the C-Suite: Staying Power, Pay, and Pain Points” analyzes the tenure and compensation of CFOs in 2056 major US companies from 2016 to 2021.

Comments are closed.