Out of all the positions in the C-Suite, CFO’s have the highest turnover rate, according to research from FP&A software Datarails. The research was conducted based on the 2,056 biggest listed US companies from the years 2016-2021.
CFOs at these companies lasted an average of only 3.51 years in post. This is slightly below the seemingly more demanding job of CEO (average 3.89 years) and well below the longest average tenured position (CTO) which stood at 4.64 years.
Out of the 2,056 companies studied, there were three companies that went through five different CFOs in the span of five years, 52 organizations that went through four CFOs in the same span of time, and 269 companies that had three CFO changes.
Why is there such a high turnover rate for CFOs?
To begin with, let's start with what is not a reason for the high turnover rate according to the statistics in the survey: salary, benefits, and pay.
The average salary for CFOs at these top public companies stood at a not too shabby $3.5 million when including salary, bonuses, stock awards and options.
CFOs have faced immense challenges over the past few years, but pay has increased along with it. The overall CFO financial compensation has increased from $2.4 million in 2016, all the way to $3.5 million in 2021 – a 40% increase over the five-year period, according to the research.
Cable & Satellite companies (average yearly salary of $8.1 million) and Hotels, Resorts, and Cruise Lines ($6.3 million) were the top two industries with the highest pay, while Publishing ($1.5 million) and Education ($1.1 million) were the two least paying industries on average over the same time period.
Top Turnover Reasons:
According to Datarails’ research from a sample of 87 CFOs that left their job in 2022, the three main reasons were as follows:
With the increasing demands placed on CFOs in addition to the incredibly fast paced ups and downs of the markets, it is no surprise that CFOs being replaced is the biggest factor contributing to the high turnover rate. Many companies were looking for new leadership and took the opportunity to replace their CFOs.
However, the other factors also contributed to the high turnover rate. A large percentage of CFOs elected to retire over the past few years, and according to the research, the average age of retirement was 60 – well below the official US retirement age of 66-67. The youngest CFO to retire in 2022 was Banc-Corp’s Christopher J. Del Moral-Niles aged fifty, while the oldest was 70 (WD-40’s Jay Rembolt at 70 years old).
Promotions are also an important factor to take into consideration. Traditionally, the CFO position was the highest position for finance employees, and once someone reached the level of CFO it was extremely unlikely for them to be promoted internally. CFOs were the head of finance only, and were far less involved in the overall mission and leadership of the company. But all of that has changed recently as well.
According to research from management consulting firm Russel Reynolds titled “Why CFOs are Increasingly Becoming a Flight Risk”, four times more CFOs transitioned to the role of CEO in 2022 in comparison to 2021. This is due to more and CFOs’ wanting to climb the ladder to the CEO position, as well as the accounting and finance profession becoming more difficult and less favorable.
The research from Russel Reynolds reinforces the data that CFOs are burning out and having a difficult time fulfilling all of the obligations. Because of this, they are looking for ways out, whether it be through promotions, retiring early, or transitioning to other leadership opportunities.
The CFO Position in 2023
The accounting and finance shortage seems to be getting worse and worse, and the challenges of finding and keeping CFOs isn’t getting any easier. The mounting pressure from the economic challenges of the past few years means that CFOs are facing more scrutiny and leadership challenges than ever before.
Businesses will have to find a way to attract finance leaders, and even more important, get them to stay. This can be through financial automation to reduce their workloads, increased benefits, or the opportunity to conduct more leadership and decision making– something that many CFOs are pursuing anyways.
The CFO exit rate is not expected to slow down in 2023, so finding ways to combat this trend is crucial in making sure your company is prepared for the challenges of an economic downturn and higher interest rates.