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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?  Perhaps Chemicals or another hard industry?

Average CEO Pay by Industry

The following graphic is CEO pay by industry in 2014 (publicly traded companies or estimated privately held companies), as estimated by Econometric Studios, the Wall Street Journal, or the AFL-CIO (click on the zoom button to get a better view). The overall average is about $5.6 million.

Interestingly, on the bottom is Agriculture production at $1.1 million.  Other members of the bottom 10 include Miscellaneous Repair Services at $1.3 million, Social Services at $2.0 million, Agriculture Production Crops at $2.1 million, Depository Institutions at $2.2 million (does the depository institutions finding surprise you?), State Commercial Banks at $2.2 million, Holding and Other Investment Offices at $2.4 million, Metal Mining at $2.5 million, Legal Services at $2.8 million, and Educational Services at $2.9 million.

On the other end, tenth place belongs to Securities Brokers, Dealers, Exchanges and Services at $8.2 million.  The ninth through sixth spots belong to General Merchandise Stores at $8.7 million, Insurance Carriers at $9.6 million, Motion Pictures at $9.7 million, and Hotels, Rooming Houses, Camps, and Other Lodging Places at $10.1 million respectively

Now to the top 5.  In fifth place is Communications at $11.0 million.  Fourth, third, and second place belong to Petroleum Refining and Related Industries at $12.5 million, Railroad Transportation at $12.5 million, and Tobacco Products at $13.1 million.

And the top spot – Private Equity|Venture Capital.  The average CEO pay is about $15 million.

Average CEO Pay by Industry

Where is Pay Heading?

With the current overall picture established, where is pay heading? Early indications are positive for the managers of companies. As an example, a recent survey by Stanford University concluded that corporate directors give CEOs considerable credit for corporate success.  Pay, obviously, follows perceived contribution to success. The Stanford study is one of many that agree with the view, indicating that CEO pay is likely to continue to grow quickly in the coming years.

Conclusion

In looking at CEO pay by industry, some interest details emerge. The financial industry comes out fairly well, with two financial sectors – Securities and Private Equity|Venture Capital – coming in in the top 10.

Yet it’s not all top spot for the financial industry.  Depository Institutions (banks), State Commercial Banks, and Holding|Investment Offices are in the bottom 10.

It appears that it pays, literally, to be in the risky section of the financial industry.

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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 $77.3 billion, well above 2014′s already high $68 billion.

On number of rounds closed, the number of rounds surprisingly declined by a fairly hefty amount, going from 9,381 to 8,097.  The drop in the number of deals was more reminiscent of the dot-com crash than simply a mid-cycle slowdown in funding of smaller companies.

Capital Invested Source: Pitchbook

A Breakdown by Quarter and Round

What’s was behind the decline in the number of rounds closed an rise in valuations? Perhaps completely unsurprising, the number of rounds dropped by the most amount for very early stage, angel rounds.

The decline in early stage, angel round investing started a precipitous drop in the second half of 2015, dropping from 2,256 in the second quarter to 1,923 in the third quarter.  The decline continued into the fourth quarter, declining from the 1,923 to 1,675.

Of course, the drop wasn’t solely the sphere of angel rounds.  Early stage venture capital rounds also dropped, although the early stage drop was more gradual and started much earlier.  The early stage decline began in the second half of 2014, and continuously dropped from 836 in the second quarter of 2014 to 536 in the final quarter of 2015.

Interestingly, the number of rounds also dropped for later stage venture capital investments, although the drop in the number of later stage venture capital rounds was quite marginal.

by round Source: Pitchbook

The Industries

With the broad macro view established, what industries are behind the figures?  An industry detailed look follows.

Unsurprisingly, Commercial Services far outpaced all other sectors, largely because Commercial Services captures such a broad swath of activity.  In 2015, the number of Commercial Services deals dropped to 2,940 from 2014′s 3,646.

In a distant second was Energy at 1,889, a slight increase from the 1,859 in 2014.  Given the weakness in oil prices and other natural resources, the continued strength in Energy is somewhat surprising.  Then again, the Energy sector includes alternative energy, a sector yet to be deterred by cheap oil.

On the other end of the deal spectrum, the smallest 3 sectors including Pharma & Biotech (150 in 2015), IT Hardware (251 in 2015), and Software (320 in 2015).

vc by sector Source: Pitchbook

The Dollars Behind the Sector Look

Lastly, here’s a look at the dollars behind the sector level deals. A generally similar view to the number of deals look materializes.

On top is Commercial Services at just over $31 billion, followed by Energy at $13 billion, Consumer Goods & Recreation at $9 billion, and Media at $8 billion. On the other end, smaller dollar volume sectors included Pharma & Biotech at about $1.5 billion, IT Hardware at $2.4 billion, and Software and Healthcare each at about $3 billion.

dollar deals Source: Pitchbook

Conclusion

2015 was an amazing year for venture capital.  According to Pitchbook, venture capital managers invested $77.3 billion in companies, well above 2014′s incredibly high $68 billion.

On a sector look, Commercial Services dominated the deal flow, as has been the case for some time. Overall, comparatively speaking, the venture capital industry is doing quite well.

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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 larger take of the pie?  What about average compensation, do you think it’s going up or down?

Here’s a look.

Salary and Wages as a Percentage of Total Compensation

First, a look at the salary and wage data as a percentage of total compensation.

Interestingly, the series has a long-term downward bias trend.  In early 2004, the percentage of total compensation devoted to salary and wages was 69.4%.

That figure precipitously declined to 64.7% in the second quarter of 2015.  Then, it jumped.  Salary and wage compensation as a percentage of total compensation increased to an amazing 66.6%.

This jump represents the first increase in a while.

What’s behind the jump?

Well, you can guess what you want.  On possible explanation is that firms finally started increasing base salary after years of stagnant wage growth.  In other words, bonus checks will show to have been relatively smaller in 2015 because of base salary growth.  Another possible explanation is that the denominator started decreasing, i.e. benefits and other non-salary compensation declined.

In any event, an interesting move.

percentage of total compensation - salaries and wages

Average Compensation

The next graphic is average compensation.

Fascinatingly, average compensation dropped off, something that hasn’t happened in a while.

Why did average compensation drop off?  Perhaps financial firms are starting to hire younger workers to replace older workers?  Or, perhaps it’s simply an anomaly?

It’s interesting to note how quickly average compensation rose from 2010 to 2015, yet a very different story is exhibited from 2005 to 2010.  Perhaps the run-up is over and the remainder of the economic boom will be akin to the early part of the decade.

cost comp per hour

How Do the BLS Figures Compare to Job Search Digest’s Survey Results?

The BLS’ figures are estimates based upon company filings and provide only an average, or total view for companies in the financial and insurance industries.  Job Search Digest’s data are based upon a survey of private equity and venture capital company representatives and provide lots of interesting detail as it relates to this sector. Here’s a breakdown look at pay by the amount of take-home pay.

Unsurprisingly, bonus pay explodes the higher up the pay scale one goes.  In 2015, individuals making $1 million or more of income earned more than half of their income from bonuses, with an average bonus of $600,000 on top of $500,000 in base pay.

As one moves further  down the pay scale, bonus pay become quite scarce.  At the lowest end – individuals making less than $100,000 per year – bonus pay barely registers.

So, how do the BLS figures align with JSD’s figures?

Well, it appear both figures are pointing to a phenomenon where bonus pay is increasingly concentrated at the top, with base pay becoming an increasingly more important part of the compensation pie for those who earn at the lower end of the spectrum.  Interesting.

Capture

Conclusion

In looking at the recently released figures on employee compensation in the finance and insurance sectors, two interesting “anomalies” shows up. First, the percentage of total compensation devoted to wages and salaries increased, from 64.7% in the second quarter of 2015 to 66.6% in the third quarter of 2015. Second, average compensation per hour dropped in the third quarter of 2015.

What’s behind the moves is up for speculation.  Perhaps the long-awaited retiring of the expensive generation is leading to some cost savings for financial employers?  Perhaps some financial employers are opting to not provide health insurance, which would explain the increase in wage and salary costs as a percentage of the total?

Lots of other potential explanations exist; what’s interesting is that it’s happening.  We’ll see whether the third quarter turns out to be a blip, or a trend.

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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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Playing Politics with the Federal Funds Rate

December 14, 2015

If things go as expected, on Wednesday Federal Reserve Chairwoman Janet Yellen will announce the first Fed rate hike in almost a decade (2006 was the last time the Fed increased the federal funds target rate). Since 2006, we’ve seen a peak in the housing market, a collapse in global financial assets, unemployment above 8%, […]

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What Is Going on with the American Consumer?

December 1, 2015

Every private equity professional – whether they want to admit it or not – is somewhat of an economist.  Private equity professionals must, by their very nature, follow demographic shifts, economic outlooks, and other economic forces. The force discussed here is the American consumer, typically considered the driving force of the American economy.  This presumption […]

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Could 2015 Mergers and Acquisitions Reach an All Time High?

November 16, 2015

Pitchbook recently released their accounting of mergers and acquisitions performance. Unless the fourth quarter of 2015 falls off the planet, 2015 is set to reach an all-time high in value terms.  Overall, if deal value climbs only by the amount it did in the first quarter of 2014, deal value in 2015 will reach about […]

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The 20 Top Cities for Global Finance

October 26, 2015

If you’re an observer of global finance, you know the financial world is becoming ever more competitive.  Among the many competitive forces is geography.  Finance firms move and shift employment for a number of reasons, including incentives, competitive wages, startup culture, and lots of other factors. With this as the background, which are the 20 top […]

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California Job Creation: Is the PE/VC Connection with Silicon Valley Responsible?

October 5, 2015

On usually the first Friday of every month, the Bureau of Labor Statistics (BLS) releases its estimate of net job creation (or destruction) for the nation as a whole.  The figures in the report are perhaps the most influential economic indicators in the world, including estimates on wage growth, unemployment, labor force, and industry job […]

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The U.S. Isn’t Number 1 in Venture Captial Investments

September 21, 2015

When you think of venture capital/private equity investing, what’s the first place that comes to mind? If you’re like most, you probably think of Silicon Valley’s tech companies or biotechnology in Massachusetts, as places with a strong venture capital base. You’d be right.  On an absolute dollar basis, venture capital in the United States is still the […]

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