Dive Brief:

• CFOs took a bigger share (21%) of the retention bonuses awarded to named officers in the five-year period through 2021 compared to CEOs who received 13% of them over the period, according to a Willis Towers Watson (WTW) survey of public filings of 1,433 S&P 1500 companies.
• However, the size of the retention bonuses awarded to CFOs was substantially smaller than those given to CEOs, according to the report.The median value of the 2021 finance chief retention bonuses was equal to 154% of base salary as compared to 261% for CEOs.
• The details comes as the length of time that award structures are requiring CFOs and others to stay with their companies to get the payouts has shortened, according to Robert Newbury, a senior director at WTW and one of the report’s authors. The retention periods now range from three to four years, down from four to five years previously, he said.

Dive Insight:

Companies are handing CFOs a significant share of the retention bonuses as the churn of finance chiefs leaving jobs has been on the rise. The percentage of S&P 500 Index companies with CFO turnover rose to 18% last year compared with 2020. 

While retention bonuses have been put in place for decades to keep executives from bolting early, Newbury said the study indicates that the bonuses are being structured in new ways that give executives quicker access to the rewards than in the past. 

Instead of getting the rewards in lump sums at the end of the award period, so-called ratable vesting in which portions of the award value are delivered each year or on a timed basis throughout the retention period are more common, he said.

“People aren’t going to have the appetite to stick around for five years without getting any kind of benefit in the interim,” Newbury said in an interview.

Nearly two thirds or 65% of awards were portioned out over time last year, up from 45% in 2018, the study found. The change comes even as there are crosscurrents under which more boards are requiring the retention bonuses to be tied to some form of performance metric. Performance-based awards were included in 33% of the retention packages, an increase from 23% in 2020. 

The shift toward shorter retention bonus periods comes as companies are confronting a tight labor market and are expanding employee training, offering workplace flexibility and increasing both the amount and frequency of pay raises.