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Gap between CEO compensation and CFO pay could close

Gap between CEO compensation and CFO pay could close

Rising to the title of chief at any company comes with the glamor of C-suite pay levels, but recent trends suggest chief executive officers could soon see the gap in pay between them and their finance-focused counterparts begin to close, The Wall Street Journal reports.

According to the media outlet, CEOs are expected to be at the center of a shakeup in the type of equity rewards traditionally given out. This, however, will come at a time when CFOs and general counsels could take home fatter checks as more firms view their services as more transferable.

Take the current situation at Morgan Stanley, for example. According to Bloomberg, the global financial services firm gave James Gorman, its CEO, a compensation package in 2012 that was down 30 percent compared with his pay in 2011. This did not include a new incentive package, but that likely isn't enough to offset the tremendous pay cut the company's leader took this year.

Documents filed with the U.S. Securities and Exchange Commission show Gorman will receive $2.6 million in stock options, as well as a $2.6 million deferred cash bonus on top of his $800,00 salary, bringing his total earnings in 2012 to $6 million. While certainly a good bit of change to take home it's still far below the $8.56 million he was given in 2011.

To Ira Kay, managing partner at executive compensation firm Pay Governance, this likely came as no surprise.

"The labor market for CEOs is in a bear market," Kay said during a Conference Board meeting as he discussed peer groups' role in setting executive pay.

According to the Journal, the manner in which firms set their executive pay is growing increasingly similar thanks to new requirements set by the SEC. The new standards on pay disclosures have led more proxy advisors to offer better transparency on CEO's payment.

Proxy firms have of late been outspoken about stock option grants, and criticized them for not being an accurate measurement of CEO performance. In turn, many companies have indeed slashed stock options for chief executives, which Kay says he believes will slowly limit CEO realizable pay.

According to figures from the Hay Group, stock options made up 33 percent of CEO long-term incentives in 2011, falling from 35 percent in 2010.

This trend may be best demonstrated by recent decisions made by the board at Chesapeake Energy, the second-largest natural gas producer in the country. Reuters reports the company recently announced CEO Aubrey McClendon has been terminated "without cause," which came only a year after the CEO's pay was cut by 15 percent - a decision shareholders say was based on a fear that he was paid too much for the work he did.

As CEO pay falls, however, CFOs and other junior executives can expect to see higher pay as demand for such skills will increase competition, and thus, salaries.

"Lower level talent is transferable," said Charles Elson, director at the Center for Corporate Governance at the University of Delaware. "General counsels and CFOs do move and [their pay] should be based on peers."

Still, these are projections, and many CEOs are bringing home higher pay every year. According to Dow Jones Newswires, Jefferies Group CEO Richard Handler took home a hefty 19 million in 2012 - a 36 percent increase from his pay in 2011. This jump in compensation was enough to secure Handler's place  among the elite on Wall Street in terms of compensation.

Even outside the financial services sector, CEOs still saw increasing pay. Take Howard Schultz, CEO of Starbucks, for example. The coffee shop mogul received $28.9 million in fiscal year 2012, up a staggering 80 percent from the previous year, and the board more than tripled his stock options, according to the Kitsap Peninsula Business Journal.

But if current trends hold strong, CEOs can expect their pay to better reflect their service to the company in the coming years. How do you see executive pay evolving over the next few years?