For the fourth time, Korn Ferry’s Corporate Affairs Center of Expertise and Financial Officers Practice has collaborated with the National Investor Relations Institute (NIRI) to survey those leading investor relations about how this crucial function is evolving.
The results—showing that more than 90% of respondents report directly to the chief financial officer or CEO—mirror what Korn Ferry partners hear anecdotally from investor relations officers (IROs) every day. Today’s IRO has a key seat at the executive table in two capacities. First, as a safeguard of the company’s financial reputation (with shareholders and other stakeholders). Second, as the advisor to the CEO and CFO for external financial communications.
To provide a clearer picture of the requirements and rewards among the top IROs, Korn Ferry and NIRI collected responses from over 50 IROs in Fortune 500 companies. The majority (78%) came from mid- or large-cap companies, 88% were NYSE-listed, and 71% were covered by 15 or more sell-side analysts. A heavy concentration of respondents came to the function from backgrounds in the corporate finance (25%) and accounting (18%) industries. Their responses covered information from the calendar year 2013.
Although the IR function has, on occasion, been viewed as a communications role, that has changed. A communications background and training may be the price of entry, but the evidence in reporting lines clearly shows that the function is a key part of the financial officer’s cabinet. Financial acumen and technical fundamentals—whether from early CPA training, MBA or CFA credentials—are now normative. This is reflected in the increase in percentage of former sell-side/buy-side analysts holding these roles.
Profile of the Fortune 500 IRO.
Background and education. Serving as an IRO in today’s Fortune 500 increasingly means being steeped in finance. More than 50% of IROs have an MBA, and 82% have completed CFA continuing education course work. The most common precursor to the IRO role is another corporate finance position (38%), and other aspects of IROs’ backgrounds show a significant sector of the field has a background in corporate finance, accounting, or investment banking.
Our data also indicates that although IROs arrive with experience outside investor relations, the function itself is less frequently used as a rotational role in the Fortune 500. In 2014, the top IRO role was considered a rotational position by only 10% of our respondents.
At the same time, only 49% define themselves as “career” IROs and are committed to a future in investor relations, down from 61% in 2008.
Among those who see the role as transitional, 32% expect to become chief strategy officer next, 28% look to a CFO position, and 16% look to advance to chief communications officer.
Scope of responsibilities. The IR role sometimes overlaps with other corporate roles, such as competitive intelligence, corporate development, and strategic planning. Although 69% of the IROs in our survey said that their purview is limited to investor relations, others have their hand in adjacent aspects of communications or finance.
Among those, the percentage who are responsible for community relations declined from 28% in 2012 to 13% in 2014. Interestingly, 30% include external communications in their responsibilities.
Compensation and bonus. Nearly all top IROs are granted some type of equity, and equity/long-term incentive plans (LTIP) remains a key component of total compensation. More IROs receive restricted stock units (RSUs) than stock options (85% v. 48%).
Base salaries ranged from $100,000 to $366,500. The median bonus rose $2,000 from the previous survey, and the highest bonus reported jumped $20,000.
- Average base salary: $224,347
- Median base salary: $230,000
- Average bonus: $86,919
- Median bonus: $77,000
- Average annual short term compensation: $311,266
A majority of IROs, 77%, do not have a change of control agreement, which would govern terms for deferred compensation and employment in the event a company is bought or sold. For those who do, 80% are for 12 months.
Benefits. Benefits remained mostly unaffected since our last survey in 2012, except for medical examinations; 22% today receive this benefit, down from 38%. In addition, IROs report that they receive other types of benefits beyond cash and equity compensation, including:
- Health insurance—84%
- Deferred compensation plan—67%
- Medical examinations—22%
- Financial/tax planning—18%
- Special officer pension plan—6%
- Club membership—6%
Employment agreements. The vast majority of IROs, 85%, don’t have an employment agreement. The duration of the 15 agreements survey respondents reported ranged from 12 to 18 months.
Work environment. The vast majority of IROs, 94%, report full time to their company’s office; the remainder work in a satellite or other office, or telecommute from home.