Incumbent CEOs working with new CFOs earn 10% more money

phys.org | 2/5/2019 | Staff
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It pays to be the boss.

According to new research from Duke University's Fuqua School of Business, it pays even more to be an incumbent CEO working with a newly hired chief financial officer (CFO).

Fuqua - Researchers - Years - Data - S

Fuqua researchers studied more than 20 years of data from S&P 1500 firms and found CEOs took home an average of 10% more compensation when working with a CFO who was hired after them, also known as a "co-opted" CFO.

The study, "CFO Co-option and CEO Compensation," is forthcoming in the INFORMS journal Management Science and offers quantifiable insights into a phenomenon that is difficult to document—the influence CEOs have on colleagues who could potentially increase their pay.

Research - CEOs - Chain - Command - Board

Previous research has shown CEOs may exert influence up their chain of command on a co-opted board; specifically, when newly appointed board members work with an incumbent CEO, the board's oversight is also weaker and CEO compensation is as much as 20% higher.

The Fuqua study examines the impact CEOs also may have leaning down the chain of command on their CFOs.

CEOs - Power - CFOs - CEO - Role

"CEOs ultimately have power over CFOs, arguably more so when the CEO played a role in hiring the CFO," said Bill Mayew, a Fuqua accounting professor and co-author of the study. "They may pressure CFOs to manage earnings to help the firm meet, or just barely beat, earnings targets from financial analysts. Those reported earnings and the response in stock prices can then drive up a portion of the CEO's compensation based on the firm's performance."

With CEOs in the study earning a median pay package of $3.19 million a year, a 10% premium for incumbent CEOs was upwards of $300,000, compared to CEOs working with CFOs hired by their predecessors.

CEOs - Pay - Years - CFO - Tenure

CEOs were most likely to see the higher pay during the first three years of the co-opted CFO's tenure, when the CFO...
(Excerpt) Read more at: phys.org
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