Last year was a relatively rough year for IPOs.  According to Renaissance Capital, IPOs in 2015 were down over 30% from their 2014 level.

The start of 2016 doesn’t appear to be offering any sort of relief anytime soon.  The IPO market is in a deep freeze.

IPOs, U.S.

The question here is – what does the IPO slow down through at least the first half of 2016 mean for Wall Street bonus pay?

Here is a look.

Bonus Pay

First, here’s a look at the history of Wall Street bonus pay by year.

The hottest bonus year occurred in 2006 at about $34 billion, representing an average bonus of about $191,000.

Following 2006′s high mark, bonus pay has experienced some massive volatility, with the bottom occurring in 2008 at a low of $101,000.

Bonus pay has recently been on a downward trend after reaching a recent peak in 2013.  Should 2016 see another drop in bonus pay, and it appears that’s likely to be the case, 2016 would make for the third consecutive year of dropping bonus pay.

Wall Street Bonuses ($billions)

Average Wall Street Bonus

The Connection

The previous section was simply speculation on what might happen to bonus pay in 2016.  Here’s an empirical look (although this here is also really just speculation on what financial executives will do with their cash later in the year).

Average Wall Street Bonuses and IPOs in the U.S.

Does it look like there’s a connection?  To the in-the-know, of course there’s a connection.  By definition, in a direct manner, the IPO business is part of a certain financial firms’ bottom lines.

How strong is the connection?

A Scatterplot View

Here’s a scatterplot view and the linear regression correlation of IPOs with average Wall Street bonuses.  Interestingly, the connection isn’t that strong.  The correlation coefficient (measure of association) is $129.  The $129 means that for every new IPO, the average Wall Street bonus rises by $129.  The constant is $112,484.

Perhaps even more interesting that the simple linear correlation is which years saw average bonus pay come in higher than the IPO figures would predict.

Perhaps unsurprisingly, 2015 was an “outperform” year for average bonus pay.  Average bonus pay came in at about $146,000.  Given the weak IPO market in 2015, the model presented below would have predicted only $130,000.

Either way, it was good to be a financial professional working on Wall Street in 2015.

The Correlation Between Wall Street Bonuses and IPOs


Overall, 2016 appears to be set for a very weak year for IPOs.  The weak IPO picture affects lots of industries and individuals.  Among the entities affected are financial professionals counting on bonus pay.  This year has the potential to see another weak year for Wall Street bonus pay, possibly dropping for the third consecutive year after peaking in 2013 at about $28 billion.


Every now and then (perhaps more often if you work in the financial industry), one should take a look at the compensation picture and compare how one is doing to others working in the same universe.

Each year, Job Search Digest conducts a comprehensive survey of private equity and venture capital professionals to reveal insights into the changing landscape of private equity and venture capital compensation.  The following is a discussion of three points covered in this survey: how their money was made, cash earnings compared to previous year, and guaranteed bonus.  The full details of the survey are available in the 2016 Private Equity Compensation Report.

How Was the Money Made?

The first view relates to how compensation was earned according to base and bonus pay.

Within the pay structure of private equity and venture capital compensation, what income level would you guess gathers the largest bonus pay?  Unsurprisingly, the answer is individuals who make more than $1 million per year.

In 2015, of the average pay of about $1.2 million for individuals who made more than $1 million per year, about $700K, or more than half, stemmed from bonus pay. The picture changes significantly from there.  Individuals who made between $500K and $1 million saw average bonus pay of about $300K, with base pay of about $350K.

Average bonus pay for individuals making between $300K and $500K was about $100K, with the remaining income categories seeing a much smaller percentage of their total compensation coming in the form of bonus pay.

2016 How They Made Their Money in 2015 Fig 4

How Do Cash Earnings Look Compared to Last Year?

The next topic is cash earnings.  The following looks at the performance of individual cash earnings from 2014 to 2015. Do you think cash pay went up?  By a lot or a little?  Perhaps down?  Or sideways?

The largest count of individuals said they saw cash pay growth by 0 to 15 percent (37 percent of all respondents). The next largest group had cash earnings of 16-100 percent more than the prior year.  The third largest count of individuals said they received about the same amount of cash pay as what they received in 2014.

Lastly, about 7 percent of respondents said they made less cash earnings than the prior year.

Cash Earnings 2015 vs 2014 Fig 5

How about Guaranteed Bonus?  What Do the Most Recent Figures Look Like?

The third topic is guaranteed bonus.  What do think respondents said? Interestingly, three out of four respondents said they received no guaranteed bonus. Far behind, in second and third places, are individuals who said they received 40 to 60 percent guaranteed bonus and 11 to 39 percent guaranteed bonus respectively.

Guaranteed Bonus Percentage Fig 7



Although 2015 will not go on record as a banner year for private equity and venture capital firms, they did turn in a solid performance which resulted in compensation gains and enhanced job opportunities for professionals in the field.


If you pay fairly close attention to financial regulation news, one topic showed up frequently last week.  The topic – private equity and venture capital valuations and the SEC’s chair Mary Joe White’s belief that valuations may be approaching bubble territory.

Her comment, while speaking at Stanford University: “In the unicorn context, there is a worry that the tail may wag the horn, so to speak, on valuation disclosures. The concern is whether the prestige associated with reaching a sky-high valuation fast drives companies to try to appear more valuable than they actually are.”

Justification for her views stemmed from an article in Vanity Fair on perceived sky-high private equity and venture capital valuations.

So, the Securities and Exchange Commission Thinks It Knows Better than Private Equity and Venture Capital Professionals about What Companies Are Worth
Does anyone find this funny?

Here’s what Ms. White is looking at, at least partially. The first chart is Series A valuations by the median. Unsurprisingly given the state of the market economy, valuations are generally higher. Typically, one would think such high valuations would be a positive signal; instead Ms. White and the SEC thinks such valuations are misguided.

(Side note: Does anyone ever wish regulators were required to put their own money where their mouth is. It’d be nice to see Ms. White have an avenue to short the market and see if she made money that way. In all likelihood, it’d just be a way for financial professionals to take her money.)

VC Median Pre-Money Valuations - Series A

The next three charts are of similar value, simply showing later stage valuations. As with Series A, pre-money valuations are generally stronger right now.

VC Median Pre-Money Valuations - Series B VC Median Pre-Money Valuations - Series C VC Median Pre-Money Valuations - Series D

Of course, Ms. White isn’t just talking about smaller size, early stage venture capital companies. She specifically mentioned unicorns. Unicorns are companies worth $1 billion, on paper.

She is under the impression, apparently, that there might be some sort of fraud going on with such companies’ valuations.

Which Companies, In Particular, Is She Talking About?

Here’s some of the biggest companies on the list (above $4 billion), courtesy of CB Insights.

  • Uber ($51 billion)
  • Xiaomi ($46 billion)
  • Airbnb ($26 billion)
  • Palantir Technologies ($20 billion)
  • China Internet Plus Holding ($18 billion)
  • Snapchat ($16 billion)
  • WeWork ($16 billion)
  • Flipkart ($15 billion)
  • Didi Kuaidi ($15 billion)
  • SpaceX ($12 billion)
  • Pinterest ($11 billion)
  • Dropbox ($10 billion)
  • Lufax ($10 billion)
  • DJI Innovations ($10 billion)
  • Theranos ($9 billion)
  • Zhong An Insurance ($8 billion)
  • Snapdeal ($7 billion)
  • Lyft ($6 billion)
  • Intarcia Therapeutics ($6 billion)
  • Stripe ($5 billion)
  • Olacabs ($5 billion)
  • Coupang ($5 billion)
  • ($5 billion)
  • Magic Leap ($5 billion)
  • Zenefits ($5 billion)
  • Cloudera ($4 billion)
  • Yello Mobile ($4 billion)
  • Vice Media ($4 billion)
  • Social Finance ($4 billion)

Act Like They’re Public?

In her Stanford University speech, Ms. White even went so far as to encourage such richly valued private firms to behave more like public companies. Public companies have more stringent checks and balances to guard against misleading investors about their value or performance.

Her calling out of unicorns, though, makes one wonder which investors she thinks are getting misled and whether she really thought through the idea that privately held companies act more like they’re public.

There are very specific advantages to being private and avoiding such scrutiny is one of them.

Summing Up

The SEC’s chair, Ms. White, gave every indication that she thinks the SEC knows better than private investors on company valuations.

Whether you find it amusing…or not…that she thinks she knows better than the market as a whole, action on some of her biases would have far-reaching consequences in the functioning of American capitalism.


CEO Pay: Does the Financial Industry Win?

March 21, 2016

There is perhaps no more contentious issue that compensation.  The contentiousness becomes even more heated when discussing CEO pay. Question – which industry has the highest paid CEOs? Here’s a look at average CEO pay and CEO pay growth by industry according to recently released figures by Pitchbook. Before looking, which industry would you guess wins?  Finance?  […]

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Was 2015 the Bonus Peak or Will 2016 Surpass It?

March 7, 2016

In the private equity and venture capital world, as with most any other industries, money talks.  More so than in most other industries, in the private equity and venture capital industries, money not only talks, but often controls the conversation. The current discussion point here is – can 2016 bonus pay beat what appears to […]

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The Value of Human Intelligence in Private Equity

February 22, 2016

“Knowledge of the spirit world is to be obtained by divination; information in natural science may be sought by inductive reasoning; the laws of the universe can be verified by mathematical calculation: but the dispositions of an enemy are ascertainable through spies and spies alone.” —The Art of War – Sun Tzu – 500 BC Any […]

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How Did Venture Capital Perform in 2015?

February 8, 2016

The 2015 year is now a month behind us.  How did venture capital do in 2015?  Here’s a look. Total Capital Invested The first look is venture capital invested and number of rounds closed by year. Interestingly, on a total volume basis, 2015 was a banner year for total capital invested.  Total capital invested reached […]

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Looks Like Base Salary Is Taking a Larger Bite of the Compensation Pie

January 25, 2016

Two interesting movements occurred in the most recent Bureau of Labor Statistics’ release of employee compensation in the finance and insurance industries. First is the percentage of total compensation devoted towards wages and salaries and second, average compensation per hour. Which direction would you guess the two are heading?  Are wages and salaries eating up a […]

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Understanding Carried Interest

January 12, 2016

When those in the private equity industry talk about carried interest, someone who is not in the know may not understand what is meant by the term, particularly since the word “interest” is generally understood to mean interest payments for a loan. With carried interest, the reality is much different. Carried interest has nothing to […]

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The Politics of Disposable Income

December 28, 2015

This past week saw one of the most well-known economic indicators – Disposable Personal Income – come in about in line with expectations. With the year almost over, and another presidency about to hit the road, now seems like a good time to take a look at how Disposable Income has performed by presidency. Before taking […]

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