Hiring a CFO? Make sure to get your kwan on!

Last week I posted my experience guiding CEOs and Boards on Hiring a CFO. One pitfall to avoid is waiting till the end of the process to get smart on CFO compensation, particularly at private companies in this period of subdued deal volume and uncertain valuations. 

The Unsung Heros: Growth Stage CFOs

CFO compensation at companies under $50 million in revenue in the tech and healthcare sectors reveals a stark reality...CFOs are underpaid for their strategic value. Based on our proprietary data and publicly disclosed reports from several executive search and compensation consultancies, technology, and healthcare CFOs at companies under $50M in revenues face the double-edged sword of accepting lower base salaries—often between $250K and $300K—in exchange for higher equity stakes 1%-1.25%.  

This isn’t generosity; it’s a misunderstood gamble. Companies are effectively betting on CFOs to transform equity into tangible growth and future liquidity. It is a high-risk proposition that might sound appealing, but the anemic volume of M&A activity and IPOs for the last 3 years has created pent-up demand for position change. Anecdotal evidence suggests that at least 33% of CFOs of private companies with valuations struck near the pandemic peak are actively interviewing. 

Our prediction is that once M&A and capital markets liquidity markedly improves, there will be a rush of resignations as CFO (and other senior executives) seek to reset individual equity positions at native AI companies in vogue or at companies that have ‘caught up’ to their previous valuations.  

The Franchise CFO: Expensive but worth it if you can hire one

The sweet spot for the CFO candidate is at growing mid-size private companies with revenues in the $250-500M revenue range. Not only are base salaries in the $350K-$400K zip code, with cash bonuses 50-60% of base, the equity percentages still converge on 1% despite higher company valuations and de-risked operational risk in many cases.   

However, getting one of these plum CFO positions is fiercely competitive and attracts multi-exit CFOs with name brand recognition and a following of past investors and top talent.

These “CFO franchise” hires can de-risk large scale future funding rounds, serve as talent magnets and provide leadership optionality for IPOs.  

Middle Earth: Where the battle is won or lost for most CFO Hires

With market compensation ranges book-ended by two distinct candidate pools (start-up/growth stage CFO) and franchise CFOs, most companies will be recruiting candidates from the middle market or $100-200M revenue range. The good news for CEOs and Boards is that this middle ground of candidates often brings greater diversity of experience, including candidates who come from PE environments and growth stage venture. CFO leaders who have exposure to both environments are aware of the differences in compensation philosophy, including how deeply equity is conveyed through the organization which has downstream impacts on building your team.  

As companies cross over from growth stage to PE compensation frameworks CFOs knowledgeable about differences in equity instrument (options, performance shares, restricted stock, phantom equity, management carve-out) and investor return thresholds are in great demand.

Before your next compensation negotiation remember what Rod Tidwell said: 

"Yeah, man, it means love, respect, community... and the dollars too. The package. The kwan"