Audit Professionals Compensation Study

KORN/FERRY INTERNATIONAL

Internal Audit ProfessionalsCompensation Study 2004Internal Audit ProfessionalsCompensation Study 2004

Objectives and MethodologyObjectives and Methodology

KORN/FERRY INTERNATIONAL 3

Objectives

Analyze compensation trends among internal audit professionals

• Base pay amounts

• Mix of compensation components

• By experience level

Assess attitudes of internal audit professionals regarding theircompensation

Analyze the relationship between compensation levels, attitudes and the demographic characteristics of internal audit professionals


Methodology

Web survey of internal audit professionals from August 14 through September 10, 2004

• Study conducted by Korn/Ferry International

• Analysis performed by KPMG, L.L.P.

289 total respondents

Key FindingsKey Findings


Key FindingsCompensation Componentsand Practices

For more than 1/3 of respondents, their total compensation award is set by the CFO

2/3 have a base pay of at least $120K

Vast majority (88%) have bonus potential

• Nearly half have a target bonus of at least 26% of base pay

• Target bonus potential rises as base salary rises

Most receive other forms of compensation besides base and bonus


Key FindingsSatisfaction with Compensation

Most are satisfied with their compensation

• 63% are satisfied with their cash compensation

• 57% are satisfied with their total compensation

Respondents with higher base pays and target bonuses are more likely to be satisfied

• Respondents with low bonus (less than 25%) are about equally likely to be satisfied with their total compensation as respondents with no bonus


Key FindingsDifferences BetweenRespondent Groups

Base pay rises with internal audit experience

• However, target bonus percentage does not

• Satisfaction varies little by experience level; ‘>15 years’ are directionally less satisfied

Internal audit professionals at larger companies more likely to have:

• Higher base pay

• Higher target bonus

• Higher satisfaction, particularly with total compensation


Key FindingsDifferences BetweenRespondent Groups (cont.)

Internal base pay at public companies similar to privates; directionally lower at not-for-profits

• Much less bonus potential at not-for-profits; not much difference between public and private companies

Despite the lower compensation levels at not-for profits, satisfaction levels similar across company types

• Slightly less (directional) at not-for-profits on satisfaction with total compensation


Key FindingsProfessional Credentials

Vast majority are professionally credentialed

• Certified Public Accountant (CPA) and Chartered Accountant (CA) is the most common (67% of respondents)

• Internal Audit professionals with CPA/CA certification have only slightly higher (directional) base pay; very little difference in bonus opportunity

By company type, internal audit professionals differ in their professional credentials

Detailed FindingsDetailed Findings


For Over 1/3 of Respondents, Total Compensation AwardIs Set By CFO

39%

17%11% 10%

6% 6% 4%9%

0%

20%

40%

60%

CFO/Finance

CEO

Audit Committe

e

Exec.

Comm./Mgmt/O

wners

Chief Audit E

xecutiv

e/Gen

eral A

uditor

BOD / Compensa

tion C

ommittee

HR/VP of HR

Other

Note: Some respondents indicated multiple individuals with

responsibility for setting their compensation

Q13. My total compensation award is set by:


Over 2/3 Have Base Paysof At Least $120K

6%

14% 12%15%

20%27%

7%

0%

20%

40%

60%

Up to $7

5 000

$75 0

00 - $

99 99

9$1

00 00

0 - $1

19 99

9$1

20 00

0 - $1

39 99

9$1

40 00

0 - $1

74 99

9$1

75 00

0 - $2

49 99

9More

than $2

50 00

0

69% Note: Numbers do not add to 100%

due to rounding

Q9. My base pay is in the following range:


88% Have Bonus Opportunity;Nearly ½ Have a Target ofAt Least 26%

19%23% 21%

15%

5% 5%

12%

0%

20%

40%

60%

1 – 15% 16 – 25% 26 – 35% 36 – 50% 51 – 65% 65% plus No bonusopportunity

46%

Q10. My target bonus opportunity as a percentage of base pay is:


Target Bonus Potential RisesAs Base Salary Rises

68%

14% 16%

39%

11%16%

51%

23%

9%1%

44%

6%

0%

20%

40%

60%

80%

100%

1-25% 26-50% More than 50% No bonus opportunity

Less than $120K $120K - less than $175K At least $175K

Note: Some numbers do not add to 100% due to rounding



Most Receive Other Formsof Compensation BesidesBase and Bonus

5%

2%

10%

19%

22%

24%

44%

70%

0% 20% 40% 60% 80% 100%

Other

Preferred shares

Discretionary cash

Long-term incentive plan

Deferred comp.

Restricted shares

Options

401(k) or 403(b) match

Q11. The following represent other forms of compensation that I receive (select all that apply):


Most Common Benefits

7%

2%

4%

15%

55%

58%

80%

85%

87%

0% 20% 40% 60% 80% 100%

Other

Country club

Child care

Car/Car allowance

Retirement

Cell phone

Life insurance

Dental

Medical

Q12. The following represent benefits that I receive (select all that apply):


By Company Type, ThereAre Significant Differences in Other Compensation Received

5%

3%

19%

25%

31%

62%

74%

0%

18%

21%

13%

51%

5%

0%

7%

14%

7%

0%

67%

10%

8%

15%

18%

0%

0% 20% 40% 60% 80% 100%

Other

Preferred shares

Discretionary cash


Deferred comp.

Restricted shares

Options


Public Private Not-for-profit



Differences in Benefits Received by Company Type

5%

2%

17%

48%

64%

81%

87%

88%

3%

10%

59%

72%

77%

85%

9%

2%

2%

9%

84%

40%

81%

84%

5%

56%

8%

10%

88%

0% 20% 40% 60% 80% 100%

Other

Country club

Child care

Car/Car allowance

Retirement

Cell phone

Life insurance

Dental

Medical




Most Are Satisfied with Their Compensation; Higher Satisfaction with Cash Component

63%

37%43%

57%

0%

20%

40%

60%

80%

100%

Yes No

Satisfied with cash compensation?Satisfied with total compensation?

Q7. Are you satisfied with your total cash compensation?Q8. Are you satisfied with your total compensation including cash options etc?


Respondents with HigherBase Pay Are More Likelyto Be Satisfied

52%

43%51%

77% 76%

59%

0%

20%

40%

60%

80%

100%

Satisfied with cash compensation Satisfied with total compensation

Less than $120K $120K - less than $175K At least $175K



Respondents with <25% Bonus About Equally Likely to Be Satisfied As Those with No Bonus

47%

73%

46%

68%

0%

20%

40%

60%

80%

100%

Satisfied with total compensation

1-25% 26-50% More than 50% No bonus opportunity

Q8. Are you satisfied with your total compensation including cash options etc?


Base Pay Rises with Internal Audit Experience…

16% 17%

9%

14%

29%

7%

12%

20%16%

6%

0%

13%9%

15%

25%29%

9%7%

22%18%

6%

0%

20%

40%

60%

Up to $75,000 $75,000 -$99,999

$100,000 -$119,000

$120,000 -$139,999

$140,000 -$174,999

$175,000 -$249,999

More than$250,000

0 - 6 years 7 - 15 years More than 15 years

Percentage with base salary at or above $120K

0-6 yrs – 59%

7-15 yrs – 64%

More than 15 yrs – 78%




…But Target BonusPercentage Does Not

22%

14%17%

3%6%

19%

26%

15%

7% 6%

17%

25%21%

14%

5% 5%

14%

19%

5%

20%21%

0%

20%

40%

60%



0-6 yrs – 45%

7-15 yrs – 47%

More than 15 yrs – 45%

Percentage with target bonus above 25%




Satisfaction Varies Little by Experience Level; ‘> 15 Yrs’ Are Directionally Less Satisfied

67%61% 59%59%

52%

64%

0%

20%

40%

60%

80%

100%

Satisfied with Cash Compensation Satisfied with Total Compensation




IA Professionals at Larger Companies More Likely toHave Higher Base Pay…


13%

26%

12%

21%

13%

0%

18% 19%

3%3%6%

9%

16%19%

34%

13%15%14%

28%

14%

5%

0%

20%

40%

60%

Up to $75,000 $75,000 -$99,999

$100,000 -$119,999

$120,000 -$139,999

$140,000 -$174,999

$175,000 -$249,999

More than$250,000

Up to $1 billion $1 billion to $5 billion > $5 billion


Up to $1 billion – 46%

$1 billion to $5 billion – 68%

Larger than $5 billion – 82%



…A Higher Target Bonus

34%

21%

10%

3%0%

19%

30%

10%

3%

12%

20% 21% 22%

8%10%

6%

13% 14%

2%

21%20%

0%

20%

40%

60%



Note: Some numbers do not add to 100% due

to rounding


Up to $1 billion – 26%

$1 billion to $5 billion – 36%

Larger than $5 billion – 61%



…And Higher Satisfaction, Particularly withTotal Compensation

57%

44%

56%

66% 65%63%

0%

20%

40%

60%

80%

100%





IA Base Pay at Public Cos. Similar To Privates;Lower for Not-for-Profits

5%

12%15%

22%

27%

8%

18%15%

10%12%

19%

12%

19%

14%

23%

2%

11% 10%

29%

10%8%

0%

20%

40%

60%

Up to $75 000 $75 000 - $99999

$100 000 -$119 999

$120,000 -$139,999

$140,000 -$174,999

$175,000 -$249,999

More than$250,000


Public – 72%

Private – 64%

Not-for-profit – 58%


Note: Some numbers do not add to 100%

due to rounding



Much Less Bonus Potential atNot-for-Profits; Not Much Difference Between Public/Private

18%

25%

17%

6% 7%5%

18%

23%

5%

10%

21%16%

10%

2% 2%0%

49%

22%

3%

23%

18%

0%

20%

40%

60%




Public – 52%

Private – 54%

Not-for-profit – 14%



Satisfaction Similar Across Company Types; Slightly Less (Directional) For Not-for-Profits

64%58%

62%58%

47%

59%

0%

20%

40%

60%

80%

100%



Q7. Are you satisfied with your total cash compensation?


Vast Majority AreProfessionally Credentialed;CPA/CA is the Most Common

67%

34%

18%11%

5%

16%

0%

20%

40%

60%

80%

100%

CPA/CA CIA/MIIA AICPAcredential

CISA CCSA/CGAP/CFSA

No Response

Only 16% did not indicate

any credentials

Q6. I have the following professional credentials:


IA Professionals with CPA/CA Have Only Slightly HigherBase Pay (Directional)

5%

12%15%

20%

28%

8%

17% 16% 18%

6%11%

24%

13%7%

0%

20%

40%

60%

Up to $75,000 $75,000 -$99,999

$100,000 -$119,999

$120,000 -$139,999

$140,000 -$174,999

$175,000 -$249,999

More than$250,000

Professionals with CPA/CA Others

Note: Some numbers do not add to 100%

due to roundingCPA/CA – 71%

Others – 64%




Very Little Difference inBonus Opportunity Based on CPA/CA Certification

18%

25%

16%

5% 5%

12%

19%15%

5%

11%

19%

5%

23%22%

0%

20%

40%

60%


Professionals with CPA/CA Others


CPA/CA – 45%

Others – 48%



By Company Type, IA Professionals Differ in Their Professional Credentials

70%

30%

13%

5%

13%

28%

5% 8%

31%

67%

53%

23%

7%2%

12%17% 18%

51%

0%

20%

40%

60%

80%

CPA/CA CIA/MIIA AICPA credential CISA CCSA/CGAP/CFSA

No Response



APPENDIXDemographic Profiles of

Survey Participants

APPENDIXDemographic Profiles of

Survey Participants


Respondents by Length of Internal Audit Experience

4 - 6 years13%

7 - 10 years17%

More than 15 years39%

0 - 3 years11%

11 - 15 years20%

Q1. How many years of experience in internal auditing do you have?


Respondents by InternalAudit Industry Experience

10%

6%

15%

20%

22%

24%

25%

26%

33%

38%

0% 20% 40%

Other

Education

Not-for-profit/Government

Energy

Services

Technology

Healthcare

Consumer/Retail

Financial

Industrial/Manufacturing

Note: Does not add to 100% because some respondents are in multiple categories

Q2. My internal audit experience has been in the following industry sectors (select all that apply):


Respondents by Company Size

$500 million - $1 billion10%

$5 – 10 billion15%

Up to $500 million13%

No answer2%

Larger than $10 billion29%

$1 – 5 billion31%

Q3. What is the size of your current organization?


Respondents by Company Type

Q4. My organization is:

Private13%

No answer4%

Public68%

Not-for-profit15%


Respondents byReporting Relationship

5%

10%

1%

2%

2%

7%

7%

10%

17%

39%

0% 20% 40% 60%

No answer

Other

Controller

General Counsel / Legal

President/CEO

A direct report to Chief Audit Executive

Dual Reporting - Audit Comm. & a Comp. Exe

Chief Audit Executive

CFO

Audit Committee

Q5. In my internal audit role today I report to:

APPENDIXAdditional Analysis

APPENDIXAdditional Analysis


Other Forms of Compensation Received Similar Across Experience Levels

4%

3%

30%

43%

2%

20%

22%

44%

74%

8%

2%

7%

20%

26%

21%

71%

14%

14%

64%

14%

24%

10%

3%

43%

0% 20% 40% 60% 80% 100%

Other

Preferred shares

Discretionary cash


Deferred comp.

Restricted shares

Options





Retirement Benefits More Common Among Highly Experienced; Other Benefits Similar

16%

6%

4%

4%

15%

60%

54%

87%

89%

86%

81%

77%

57%

48%

12%

6%

0%

4%

86%

85%

79%

55%

2%

63%

5%

8%

83%

0% 20% 40% 60% 80% 100%

Other

Country club

Child care

Car/Car allowance

Retirement

Cell phone

Life insurance

Dental

Medical




Differences in Certifications Based on Years of InternalAudit Experience

65%

23%

1% 1%

26%

35%

12%

2%

17%

40%

14% 17%11% 9%

29%

15%

66%68%

0%

20%

40%

60%

80%

100%

CPA/CA CIA/MIIA AICPAcredential

CISA CCSA/CGAP/CFSA

No Response




Some Differences by Company Size in Other Forms of Compensation Received

9%

2%

22%

2%

41%

76%

6%

2%

9%

29%

28%

31%

6%

7%

31%

62%

12%

14%

25%

17%

10%

1%

72%

54%

0% 20% 40% 60% 80% 100%

Other

Preferred shares

Discretionary cash


Deferred comp.

Restricted shares

Options





Comparison in Benefits Received by Company Size

2%

63%

85%

89%

7%

2%

4%

21%

59%

63%

87%

89%

3%

2%

6%

41%

47%

71%

81%

85%

3%

13%

89%

61%

7%

8%

84%

0% 20% 40% 60% 80% 100%

Other

Country club

Child care

Car/Car allowance

Retirement

Cell phone

Life insurance

Dental

Medical




Little Difference in Professional Certifications by Company Size

63%

29%

7%3%

24%

39%

13%7% 6%

67%

34%

16%13%

5%

19%16%

22%

69%

0%

20%

40%

60%

80%

CPA/CA CIA/MIIA AICPA credential CISA CCSA/CGAP/CFSA

No Response




Closing Thoughts

Are those who are new to their roles earning more money than career internal audit professionals?

Should CAEs receive bonuses? Stock options? Or should they be compensated on a purely cash basis?

How are internal audit professionals compensated, compared to CFOs, treasurers and other senior finance executives?


Feedback

If you have suggestions for the 2005 survey, please contact:

Charles B. EldridgeSenior Client Partner

Managing Director, Financial Officers PracticeKorn/Ferry International

+ 1 404 222 [email protected]

KORN/FERRY INTERNATIONAL

Internal Audit ProfessionalsCompensation Study 2004Internal Audit ProfessionalsCompensation Study 2004

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Audit Professionals Compensation Study