Does factory reset notify me of device removal on Find My iPhone?
The device can't be removed from Find my iPhone by resetting it. Furthermore, you can and probably should set the device to lost mode if you want to put a PIN on it and lock the device with a helpful message to contact you for the eventual return of the device. If you really just want the device wiped, then you can erase it, knowing that still it will show your lost message:


  With iOS 7, Find My iPhone can continue to display your custom message, even after your device has been erased. 


When you press the Reset button in Settings, it asks for your Apple ID, and will only reset the device when it's been entered.

Attempting to turn off Find my iPhone through iCloud settings will prompt for your Apple ID.

If the device is factory reset when powered off through iTunes, it will still require activation using your Apple ID.

Putting the device in lost mode is probably better since eventually the thief will decide to return it once they realize whomever they sell or give it to will keep getting reminded that the device was lost and should be returned to you.