How should an FD be incentivised?

Wednesday, December 08, 2010 | Posted by: Fiona Cullinan
Categories: Research, Thought Leadership | Tags: statistics, report, survey, data, FD, CFO, Directorbank, talent, incentives, finance director, analysis, private equity, skills, stake, Plc

There were some differences in how the directors thought an FD should be incentivised, against the views of the outstanding FDs themselves, according to Grant Thornton’s recent survey, researched in conjunction with Directorbank

Free download
You can download the full survey and report What makes an outstanding finance director? as a free PDF. Or, to read just the key findings of the survey of 350 directors, see our post on Elevate – for business leaders.

Equal players?
Unsurprisingly, the outstanding FDs were nearly all in agreement that an FD should be an equal player on the management team and should therefore hold the same stake as the CEO.

But the surveyed directors mostly thought an FD’s stake should be around 50% to 60% of the CEO’s stake. Around a third thought it should be 60% or more and a significant number (41%) said the stake should be less than half of the CEO’s.

Plcs versus private equity
Most of those surveyed felt the difference between the way FDs are incentivised between Plcs and private equity-backed companies is largely overplayed, particularly as the length of time that businesses stay in private equity hands increases.

Our respondents said:

“Would I invest in a business in which the FD had no equity interest? Probably not. If you’ve hired someone who is tempted to change the presentation of figures based on equity interest, your control systems have misfired at a number of levels.”
Simon Ball, Deputy Chair, Cable & Wireless Communications Plc

“An FD has got to think as a shareholder, so they have to be aligned with shareholders – whether it’s direct equity or a long-term incentive plan. Reward mechanisms are a crucial part of the equation.”
Roger Matthews, Chair, MITIE Group Plc and LSL Property Services Plc (Mr Matthews also posts his thoughts on FDs in our Unsung heroes video post.)

To read more FD insight,  see more posts in our series on finance directors As always, we welcome your thoughts on this and any other aspects of the What makes an outstanding finance director? report. If you would like to speak to anyone about any of the details in the report, please get in touch with Jo Parr at jo.k.parr@uk.gt.com.

You might also find these posts useful:

* How does an FD gain commercial skills?
* Is your FD a chief exec or chair in waiting?
* How to get noticed as an outstanding FD (and get the top jobs)