Compensation

News of layoffs at major financial institutions has dominated the headlines for the past few weeks. But despite the lower headcount and reduced expenses, it doesn’t necessarily mean that bonuses or compensation will change for those private equity jobs and bankers still employed, reports The Deal.

Companies that free up cash with layoffs tend to hoard it, in order to protect their margins and capital levels. The people who survive the cuts “won’t get paid more, they just don’t get paid less,” says Gary Goldstein, co-founder of New York recruitment firm Whitney Partners.

However, layoffs have affected first, second and third-year analysts, who have traditionally been safe from major layoffs because firms did not want to scare off future recruiting prospects. The Deal reports that not only has this group been targeted for cuts as well, but that only 5% of the top analysts are receiving top-dollar bonuses, as compared with 25% before the financial crisis.

The tightening of salaries and bonuses in banking is causing some analysts to eye a career move into private equity jobs. The recruiting season for junior talent at private equity firms was as intense as during the peak years of 2006-2007, according to Brian Korb, co-founder of Glocap Search LLC in New York. At that time, the surge in recruiting was driven by a wave of aggressive capital raising at PE firms. Today, it’s being fueled by pent-up demand from firms that played it safe after the financial crisis, and now have a shortage of junior talent.

Private equity firms generally hire analysts that have worked for investment banking firms for three years. But now they have a smaller pool of talent from which to choose, since banks have cut back their analyst ranks. The upside: larger, more established private equity firms are reportedly paying third-year analysts between $200,000 to $250,000. While that’s a healthy starting salary, it’s still down from the $300,000 peak before the crisis.

What about you? Have you noticed an uptick in private equity hiring at the analyst level? Add your comments below.

{ Comments on this entry are closed }

Private Equity managers and other asset managers who thought they might avoid a European clampdown on compensation are now facing tighter restrictions on how and when bonuses are paid and disclosure, reports Reuters.

A new consultation paper on the Alternative Investment Fund Managers Directive (AIFMD) proposes extending the reach of regulators and Europe’s Capital Requirements Directive, according to a spokesperson from consultancy PwC.

Previous rules targeted bank pay, primarily. While asset managers such as private equity executives were among the most leniently treated, in tier 4, with minimum use of deferral and equity.

Now, under the new measures proposed in the AIFMD, firms may be required to pay at least half of their bonuses in stock and defer between 40 to 60 percent of variable pay for up to five years. This is intended to restrict the amount of cash bonuses to align compensation more closely with risk. Firms will also have to disclose total pay for a financial year, and provide a breakdown of compensation for senior managers and other key staff members.

You can well imagine the sensitivity of disclosing total pay for top executives at a firm. The new rules could put EU-regulated firms at a disadvantage for the recruitment and retention of employees. It also affects both firms based in Europe and those that are marketed in Europe. So it could potentially lead some private equity firms or private equity executives outside the EU to rethink doing business there.

“The rules will mean sweeping changes to the pay policies and practices of many asset management firms. Many thought they’d escaped the brunt of banking pay regulations, but they’re coming back to bite,” said Tim Wright, reward director at PwC. “It is something of a surprise that it looks like carried interest will be included. Carried interest is directly linked to realisations made in the fund managed and there are likely to be conceptual difficulties in calculating the annual amount,” says Wright.

Private equity firms have until September, 2011, to respond to the new directive, which could be implemented in the summer of 2013.

Will the new AIFMD directive affect your firm or your career plans? Do you think similar regulatory moves are on the horizon in North America? Add your comments below.

{ Comments on this entry are closed }