Across virtually all industries, finance executives are finding that the road to personal prosperity just got steeper–and the terrain rougher. In the 2001 compensation survey conducted for Treasury & Risk Management by executive compensation consultants Pearl Meyer & Partners, CFOs at 50 U.S. companies with average revenues of $27 billion saw their total remuneration advance just 1% in 2001 to $2.918 million from $2.875 million. (In 2000, even as the white-hot tech sector began to slow, CFO pay still managed to jump 17% in the Pearl Meyer survey for that year .) Treasurers fared worse in 2001, with their salaries actually falling 4% to $905,000, versus a 16% climb in 2000. After increasing 8% in 2000, controller salaries were largely unchanged last year at $958,000, compared with $955,000 in 2000. Those figures include base salary, annual incentives, long-term incentives and stock options.

Are finance execs taking the fall for the high jinks at companies like Enron Corp. and Global Crossing Ltd.? Perhaps, to some extent. But Pearl Meyer reports CEO pay also suffered: down 10% in 2001 to an average compensation of $10.5 million. No, the evaporation of big-bucks gains last year is tied most directly to a two-word platitude that never meant much as long as the market was headed skyward and the economy was expanding. "One of the most important things that people are learning is that compensation is performance based," says Diane Posnak, a managing director at New York-based Pearl Meyer. In other words, when you don't perform, you're penalized, and when your company stock doesn't perform, your options aren't worth much.

One need only look at some of the big winners of 2000 to see the carnage wrought in 2001. Take, for instance, Deborah Hopkins, the trophy CFO lured away from Boeing Co. to Lucent Technologies Inc. for a stunning $9.5 million. She and Lucent parted ways in May 2001. Then, there is Jeffrey O. Henley of Oracle Corp., whose total compensation in 2000 was $76 million, including exercised stock options; last year, it was a far more modest $929,933. Or then there is Larry R. Carter of Cisco Systems Inc., who pocketed $49.4 million in 2000, thanks to exercised stock options, but only $425,712 in 2001. As Allen A. Geller, a managing director at recruiting firm Raines International, so aptly puts it: "Back in 1999 and 2000, everybody was fat, and in 2001, everyone went on a crash diet, especially when it came to bonuses."

Check out the Pearl Meyer survey results if you need more evidence: For CFOs, annual bonuses fell 5%, for controllers 14% and for treasurers 1%. Stock options were off 2% for CFOs, 5% for controllers and 6% for treasurers. Long-term incentive plans were mixed: They rose 12% for CFOs and 38% for controllers, yet fell 16% for treasurers. But while the add-ons look more sparse, base salaries showed some inflation-plus growth in 2001: up 8% for CFOs, 5% for controllers and 4% for treasurers. "When equity is not as valuable as it used to be, people want to make sure they are getting a strong enough cash package," says Barry Bregman, managing partner at Heidrick & Struggles International in New York.

None of this means, however, that options have fallen completely out of favor. To the contrary, recruiters say the absence of options for many executives in 2001 simply reflects poor corporate performance more than any lack of interest among executives. "Stock options are still in vogue and will continue to be. It is a reward system that has a real motivation for people," says Peter McLean, a headhunter at search firm Spencer Stuart.

All recruiters agree that if Congress were to enact legislation limiting the use of stock options, it wouldn't ultimately translate to more reasonable rates of executive compensation. "I think no matter what occurs or what regulations may affect stock options, corporations will find ways to effectively compensate the best and the brightest," says Gary Kaplan, who owns a consulting firm in Pasadena, Calif., bearing his name. He cites financial planning services, executive health plans, private jets and housing arrangements as some of the perquisites being included in comp plans these days.

Waiting for the Recovery

To be sure, even with the belt tightening happening these days, some CFOs still did quite well. For instance, Mark H. Swartz, CFO for Tyco International Ltd., which has been forced to unwind many of its acquisitions recently, suffered a more than 50% cut in pay and still managed to take home more than $21 million in 2001. And it continues to pay to be the top finance person at a financial services company. J.P. Morgan Chase Inc.'s finance chief, Marc J. Shapiro, earned $13 million-plus last year. David A. Viniar, CFO of Goldman Sachs Group, received more than $6 million in compensation.

Regardless, most compensation experts say that 2001′s retrenching is largely related to the recession, and they expect things to pick up once the economy recovers. Fueling the increase is the greater responsibility in being a CFO, especially as a strategic partner of the CEO. And with the Enron scandal fresh in people's minds, skilled financial executives are becoming more important. "People are looking for a combination of financial skills, an understanding of financial markets, financial planning analysis, budgeting, accounting, reporting," says Spencer Stuart's McLean. He adds that CPAs, who fell out of favor in the 1990s as companies wanted finance professionals with experience in initial public offerings and mergers and acquisitions, are once again in demand.

Age could be another force that drives up compensation as well. Recruiters note that with Baby Boomers approaching the age of retirement, many companies may have fewer options available from which to select the next CFO once the current one retires. That will create a scarcity that will certainly be reflected in fatter compensation packages. "Numerically speaking, there won't be the quantity to select from once the Baby Boomer generation passes from the scene," says Kaplan. "On the surface right now there is an excess of talent, but that will sort itself out again." Some companies are recognizing this now, Heidrick & Struggles' Bregman says. "The better organizations are thinking about it and are developing the next tier of senior financial management," he says.

Those who are still working as their contemporaries retire shouldn't expect the royal treatment, however. According to most recruiters, the days of the CFO as a star are very much over. "Substance over form is going to be the key," says Bregman. "I don't think Wall Street or boards of directors are going to look for glitz. They are going to look for substance. As long as they understand the business, that's where the biggest value is." Says Spencer Stuart's McLean: "Star power is never healthy for executives. They have a job to do for their shareholders, so they should focus on what they are doing instead of focusing on their image."