CFO Employment Agreement: Negotiating Your Compensation Package and Other Key Terms

By Robert A. Adelson

As the Chief Financial Officer (CFO) or senior financial executive in your organization, you hold an important role, responsible for the financial stewardship, strategic planning, and overall fiscal health of the company. Given the weight of these responsibilities, it’s appropriate that you have a CFO employment agreement with the company, and that contract reflects your contributions and provides reasonable protections for your interests.

Whether you are considering a new CFO job offer, renewing your contract, or moving up to the CFO role, this article suggests some key terms for your focus when negotiating your CFO compensation package and employment terms.

◼️ Role and Responsibilities

As a CFO, you manage the company’s finances, including planning, record-keeping, reporting, and risk management. Additionally, you represent the company’s financial integrity to stakeholders, including investors, officers and directors, lenders, regulators, customers and suppliers.

Some CFOs concentrate on external financial matters like fundraising or IPOs, while others focus on internal operations. In smaller companies, CFOs may take on COO responsibilities as well. 

Startup CFOs are often focused on funding and capital management and may also be involved in operational efficiencies to reduce costs or, conversely, to build out infrastructure and processes.

Fractional CFOs, on the other hand, may be hired to focus on short-term objectives such as preparing for audits, restructuring financial processes, or supporting mergers and acquisitions. 

◼️ Contract Clarity and Support

In light of these varied roles, your contract should clearly outline your responsibilities, as well as reporting structure and authority. 

Along with this clarity in the delineation of your role, you should also seek inclusion of any items of support you feel important and also set out any promises or representations you have been told about the company, its prospects, or your position on which you are relying to take the position. Listing items of support often includes resources needed to perform, such as staff, budget, expense accounts, and technical support.

Clarity in your role and responsibilities is important because your performance is likely to be evaluated based on your level of performance in those responsibilities. Clarity in the support you expect can also be important because if the company fails to support you as provided or fails to honor other promises made, that might serve as a basis for a potential resignation for good reason which could trigger severance.

◼️ CFO Compensation Package

Your compensation package is not just about the base salary but encompasses bonuses, equity, and benefits such as healthcare and life insurance, relocation, and a car as well. 

◾ CFO Salary and Bonuses

CFO salary and bonuses vary depending on the company size, industry, stage of the company, and the CFO’s role and responsibilities. In New England, for example, CFOs of $20-50mm companies may get a $250-400k base salary plus a 25% – 50% bonus.  If your role is in external finances such as IPOs and fundraising, you are likely to get more lucrative back-end cash bonuses and equity pay. If your role is in internal financial operations, your compensation will likely be commensurate with years of experience and company size. 

You would want to check that your base salary is competitive with market standards for your industry and location. For cash bonuses, it is wise to negotiate a formula that calculates the amount based on performance goals, which is reduced to writing.  Ideally, that bonus would also be based on your level of performance – not all or nothing if you don’t fully meet the target, and also provide for a higher than-target bonus if your performance exceeds target levels. Set the target early in the year so you know the goals you are working toward.

◾ CFO Equity Compensation

Equity is also often an important part sometimes potentially the most important part of the CFO compensation package. For CFOs at high-growth and pre-IPO companies, there is likely to be a huge upside.  This gain could potentially be magnified even more from a tax-favored structure for capital gains treatment or even more from QSBS–qualified small business stock.  This equity compensation would be especially important should you decide to take a cut in your base salary and make it up in equity terms. 

Even at established and public companies, there can be times when cash is short and the company offers equity in lieu of cash.  Here again, you should seek tax-favored equity that offers the possibility of capital gains or QSBS treatment when the shares rise in value.  Additionally, with established companies where the stock rise may be less and decline is also more likely, including RSUs in your package may be important to assure your equity is not “underwater” and hence worthless.  

Understand the mix of equity and terms you are offered, including terms related to a vesting schedule, cashless exercise, and net settlement.  My earlier articles published in IvyExec on stock options (including ISOs and NQSOs), RSUs, restricted shares, and phantom stock, explain the pros and cons of these types of equity. 

Also, pay attention to the clawback provisions. These terms allow the company to reclaim previously awarded compensation such as bonuses, stock awards, and vested shares in situations involving misconduct, fraud, or failure to meet performance metrics. Your professional reputation can be at stake as well, so you should carefully review and negotiate these terms to ensure they are fair and reasonable.

◾ Other Benefits and Perquisites

These are additional perks that can significantly impact your overall job satisfaction and work-life balance, such as comprehensive health insurance and retirement plan contributions, car allowances, club memberships, or financial planning services. If you are required to move for the job, negotiate for executive relocation expenses and temporary housing assistance as well.

◼️ Severance and Termination Clauses

No job is forever. You could be ousted by a new CEO or during a change of control at your company.  At worst, you are wrongfully terminated.  It is wise to consider separation even as you are negotiating to get the job.  A well-negotiated CFO employment agreement or job offer will provide a CFO severance package that includes salary continuation, bonus payouts, and continuation of benefits.  That package should also provide two sets of triggers for the package – first, if your employment ends unexpectedly and without justification, and the other, when the company fails to live up to its bargain with you, and you give the notice to trigger severance.  My earlier articles at Ivy Exec explain executive severance packages, executive retention packages as well as wrongful termination.

Seek Executive Employment Counsel

Negotiating a CFO employment agreement or job offer requires careful consideration and attention to detail to ensure that you are fairly compensated and your professional interests are protected. It is wise to consult an experienced executive employment agreement attorney to help you navigate the complexities and secure the best possible terms for your employment.