Health Care, Stock Options Weigh On CFOs

December 11, 2002 ( - Chief Financial Officers (CFO) rank health care and stock option issues as very important to their company in 2003, but see growth in capital spending and productivity, according to the Financial Executives International (FEI) and Duke University's Fuqua School of Business CFO Outlook Survey.

When asked to respond to a list of 10 issues on President Bush’s 2003 agenda, 43% of the 314 CFOs polled selected a health care issue as mostimportant to their company . Specifically selected as the most important were:

  • 23% chose stopping a patients’ bill of rights thatexposes employers to liability from employees’ health plan design
  • 16% said that allowing companies to band together to purchase affordablehealth benefits
  • 4% selected adding a prescriptiondrug benefit to Medicare.

Stock option concerns also were reported as the most important to CFOs for the company in 2003.   Twelve percent report their company’s most important concern was preventing the withdraw of employee taxes from stock option compensation, the third most selected response.   Further, 11% said that preserving the current method of option valuation was most important.  

The survey also asked CFOs what their outlook for their company’s growth looked like.   Forty-four percent of CFOs said they expect increasing the number of employees at their companies next year, opposed to 19% expecting no change.

However, 27% expect a reduction in 2003, with particularly lower numbers expected in the construction, transportation and manufacturing industries.

Wages will be up slightly, an expected 3.2%, while bonuses are expected to be 1.9% lower than 2002’s numbers.   Service and consulting industry bonuses are particularly hard hit, with reductions averaging 12.4%.   The technology industry is also expecting to cut bonuses an average of 5.5% from last year.   However, the banking, finance and insurance industry is expecting to increase bonuses an average of 2.4%.

Productivity is also anticipated to grow 4.3% in 2003, with technology anticipating an increase of 11.6% in productivity.  

Additionally, earnings and dividends are also expected to increase in 2003.   Three-fourths of those surveyed expect earnings to grow in 2003, an average 13.1%.    Among firms that pay dividends, New York Stock Exchange-listed companies in the survey predict a 4.1% increase in 2003; NASDAQ/AMEX firms predict a 2.6% increase; and private firms predict a 4.2% increase.

Companies are also looking to increase spending in 2003.   On average, companies expect to increase capital spending an average of 4.8% in 2003, up from an anticipated 5% decrease in 2002.   Capital spending estimates reveal this quarter, 12% responded that they are now spending “ambitiously,” compared to only 5% last quarter.   Although 54% are spending cautiously and 24% are spending at normal levels.   Fourteen percent report not spending on capital expenditures at all.

Of those reporting cautious spending:

  • 37% say they will return to normal spending in 2003
  • 44% say they will return to normal spending in 2004
  • 5% say that capital spending will remain
    below normal beyond 2004.

Spending on technology is also expected to see a boost in 2003, with average technology spending figures expected to increase 4.9%; up from last year’s prediction of a 1.4% increase in 2002. 

Overall, 59% of companies spending more on technology, with the mining and construction industry led all other industries, with a predicted 9.2% increase in technology spending, followed by the banking, finance and insurance industry, which expects an 8.5% rise.