What Moneyball Can Teach Us About Hiring CFOs

As a life-long sports fan and business buff I am fascinated by what the business of “free agency” reveals about talent acquisition, retention, and succession planning.  When is the right time to trade your most valuable (yet most expensive) stars and promote from within and steer resources to other key players on the corporate executive team?   

In a world where there may be a “fixed pool of compensation” borrowing from Peter to pay Paul may have unintended undesirable consequences.  Potentially overpaying for one free agent acquisition may mean the risk of losing other valuable leaders on the team.   

You are the CEO and you have limited capital to spend on key hires. What should you do? As someone who has brokered executive recruitments and compensation negotiations for over 10 years here is my first recommendation.  Get to know the talent market, meet as many potential candidates as possible, gather information from third parties and do your own snooping.  Until executive compensation for private companies is fully transparent there is no solution to this information symmetry.   

The growing crescendo for pay transparency is a movement we at StewardSearch fully embrace and seek to accelerate.  While imperfect, here is one admittedly imperfect data point on compensation for CFO hiring in the high technology sector.   

Based on the last decade of survey data recruiting CFOs in the technology sector within the major technology industry metros our analysis suggests that CFOs of high technology companies in the $50M-125M revenue range command a 30% premium (salary and target bonus) over candidates with a VP Finance title at similar sized companies.  The spread on equity compensation is meaningfully greater with CFOs earning 60–75 basis points more than candidates with a VP title at similar sized companies.  So, if your VP Finance is currently receiving 25-30 basis points of equity be prepared to reserve at least 1% of equity from the option/equity pool and budget total cash compensation of at least $375,000 (salary and bonus) to uplevel the organization with a CFO hire. 

A few anecdotal comments about the executive compensation market.  Companies with unfavorable cap tables are having challenges closing more seasoned CFO candidates.  Seasoned CFOs with successful track records may command outsized compensation packages (rock-star pay).  For example, a 1.5 - 1.75% equity grant for a CFO is ~ 90th percentile + range.  

However, bringing in a CFO at that level could leave limited equity grants for Corporate Controller or Head of FP&A hires.  This could be a problem because many seasoned IPO quality CFOs will want to strengthen their key reports which will necessitate additional equity comp (and dilution for investors).   

Companies with solid business fundamentals and employee friendly cap tables are extremely well positioned to play offense in the current hiring market.  Companies with upside down cap tables and/or challenged business fundamentals will need to sharpen their pencil and look for value in the talent market, a process which typically involves betting on less proven yet highly capable talent. 

#HumanResources #Careers #PayTransparency