CFOs bullish about U.S. prospects


America's CFOs are bullish about the prospects for their companies and the economy in general, with their optimism reaching the highest it has been in almost two years.

The first quarter "CFO Outlook Survey," conducted by Financial Executives International (FEI) and Baruch College's Zicklin School of Business has found that the index of economic optimism has risen for the second consecutive quarter, reaching 71.06 out of 100.

The index of individual company optimism crept up another 0.73 points to 78.12, the highest it has been in almost two years.

Moreover, three-quarters (77 per cent) of the 200 CFOs surveyed expect their companies to hire more people over the next twelve months, at an average increase of four per cent.

Further survey results point to additional, but modest, inflation. Seven out of 10 CFOs said that their companies plan to increase the prices of their products, although the expected increase averages just 1.5 per cent.

Three-quarters of CFOs also expect their companies to increase capital expenditures, with the increase averaging seven per cent. This is a lower expected increase than last quarter.

"The survey shows CFOs are very bullish about their companies and the economy," notes Burton Rothberg, Assistant Professor Accounting at Baruch College.

"The rub comes from their predictions of only a modest increase in interest rates. We should note, however, there is a significant minority of CFOs who expect more tightening. How all this plays out will be interesting to watch in the months to come."

Among the issues taxing CFOs, the rising costs of employee benefits loom large. Of the companies currently offering a defined benefit pension plan, 37 per cent are considering a change to their plans, such as freezing it or converting it to a defined contribution or cash balance plan.

More than half also expressed serious concern about the rising cost of premiums they have to pay to the Pension Benefit Guaranty Corporation.

Additionally, health benefits are still problematic. Ninety-five percent of companies expect their health care spending to increase, with the average increase forecast at 8 per cent.

The companies surveyed are currently covering just over 70 per cent of employee health care premiums, on average, with one-third having reduced their subsidy during the past three years.

The survey also explored CFO attitudes towards the SEC's proposal to expand disclosure of executive compensation.

Seven out of 10 respondents said they were generally supportive of the changes, with a third believing that the proposal will make companies more careful not to award excessive pay. But four per cent said that the disclosure rules will actually drive pay up.

While a clear majority-64 per cent-are against the House Bill (H.R. 4291) that would require shareholder approval of executive pay packages, a surprising one-third said they approved of the bill outright or under certain circumstances. Approval for this proposal was higher among private companies than public companies.

Colleen Cunningham, President and CEO of FEI, said that the questions on executive pay drew some of the strongest comments in recent survey history.

"In general respondents acknowledged the problem of excessive compensation but felt responsibility for its control lay with the Board and its compensation committee rather than via additional regulation," she said.