Who Knew? CFOs Get Paid to 'Manage' Earnings

Chief financial officers' compensation is influenced by both the complexity of the job and the CFO's performance, according to a study by Steve Balsam, professor of accounting at the Fox School of Business at Temple University.

CFO salaries increase with the intricacy of a firm's operating, investing and financing activities, he says. Bonuses correlate with a CFO's ability to deal with analysts and meet earnings forecasts, particularly when they do so by managing accruals, the study found.

"Our findings highlight the importance to firms of meeting analyst forecasts and their willingness to incentivize and reward CFOs for doing just that," says Balsam. "Regulators and shareholders don't want CFOs managing earnings to meet targets, yet they are."

The study looked at compensation data paid to CFOs between 1993 and 2006 by the 1,500 largest U.S. companies. Mean CFO salary was $320,160, mean bonus was $219,832, and mean total compensation was $1,374,865. Each grew substantially over the study's sample period.