It used to be that CIOs were judged and rewarded solely on IT achievements: projects finished on time and on budget, compliance systems installed and working, key hires made. That's still how it is for many CIOs, whose companies view IT as a support function.
But as enterprises build business models around IT, CIOs gain stature and influence--as well as the pressure of trying to hit a list of accounting targets that were once the burden of the CEO and CFO only. Michael Basone, CTO at Weight Watchers International, says IT leaders must remain undaunted. Financial metrics help focus top executives on the same goals, Basone says. But that's only half the battle. Companies must also foster true collaboration at the top, he says, because IT is fused with every other part of the business.
Without IT, there's no sales or profits or customer service or geographic expansion or, increasingly, competitive advantage.
One way to assess how high the stakes are for companies--and for their CIOs, personally and professionally--is to dissect the compensation plans of some powerful IT leaders. Among the 1,000 biggest public companies in the United States, 45 CIOs were rewarded highly enough last year to be included in the proxies required by the SEC, which explain how the top five company executives are paid.
Compensation for this elite 45 is a complex formula of fixed pieces, such as salary and perquisites, and variable pieces made up of cash, stock and options. Within the variable portion, there are both short- and long-term grants. To get them, executives have to achieve the financial goals the board specifies. The motivation? Variable pay can account for 70% to 80% of a CIO's compensation.
There's no uniformity in those metrics. Profits and sales are popular, of course, but CIOs in our analysis were on the line for at least a dozen other measurements last year, including cash flow, return on invested capital, book value per share and operating ratio. There is also usually an industry-specific metric. For example, Norfolk Southern CIO Deborah Butler had to help her peers improve the railroad's train and connection performance. (Partially achieved.) Allstate CIO Suren Gupta had to help increase the number of policies sold to households that might be interested in multiple kinds of insurance. (Not achieved.) Sometimes special events at the company dictate a goal. Laboratory Corporation of America (LabCorp) recently acquired three smaller medical testing companies, and one 2011 goal for CIO Lidia Fonseca was to help attain specific savings from integrating those acquisitions. (Achieved.)