Average CFO Compensation at IPO Companies Reaches $1.2 Million in Past Two Years, Incentive Pay Accounts for 71%
The latest report from Alvarez & Marsal shows that CFOs at companies that went public in the past two years earned an average compensation of about $1.2 million, with annual and long-term incentives accounting for 71%; CEOs averaged about $2.6 million, with incentives making up 80%. Meanwhile, EY data indicates that IPO fundraising reached $27.3 billion in the first nine months of this year, up 40% year-over-year, but the market still faces multiple headwinds.
Key Points:
- According to Alvarez & Marsal analysis, companies that went public in the past two years had CFOs with average compensation of approximately $1.2 million, with annual and long-term incentive compensation accounting for 71% of total pay.
- CEOs of these newly public companies had total compensation of approximately $2.6 million, with annual and long-term incentives making up about 80% of their pay packages. The data is based on an analysis of financial reports from 497 companies, with a median market capitalization of $731 million.
- Alvarez & Marsal noted in the report: "Companies should ensure their executive compensation plans are competitive with the talent market at every stage of their lifecycle, including before and after an IPO."
Deep Insights:
According to EY, in the first nine months of this year, the IPO market raised $27.3 billion, up 40% from the same period in 2023, but still well below levels seen in the early 2000s, which may signal a market recovery.
EY stated that companies that pivoted to the IPO market during this period outperformed benchmark indices, with an average return of 23.9%, while the S&P 500, Nasdaq, and Dow Jones Industrial Average gained between 10.4% and 18.1%.
EY also pointed out that multiple persistent headwinds have slowed the IPO recovery, including overseas conflicts, recession risks, the unpredictable outcome of the November 5 election, and potential shifts in government policy after the election.
Alvarez & Marsal stated that companies considering an IPO are facing increasingly challenging legal, regulatory, financial, and operational issues.
The professional services firm said: "Public companies face more regulations and higher disclosure requirements than private companies, especially regarding the transparency of executive compensation plans. Due to these additional requirements, executive compensation has become a relatively complex aspect of IPO preparation."
Alvarez & Marsal noted that in short-term incentive plans, profitability is the most commonly used performance metric, with 78% of recent public companies using it as a benchmark; revenue/revenues is the second most common metric, adopted by 61% of companies.
The most commonly used long-term incentive among recent IPO companies is "appreciation-only" awards, which are tied to the increase in the company's stock price over a certain period. Four out of five companies rely on such incentives.