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The 2008 Private Equity Jobs Digest Compensation Survey was conducted in Fall 2008 and received private equity compensation data directly from hundreds of private equity and venture capital partners and employees from firms, both large and small. Some of the participating firms include: Credit Suisse, Delta Partners Group, Intel Capital, Kaiser Permanente Ventures, Lehman Brothers, Soft Bank Capital and many others.
With the shift this year in the financial markets, the results indicate that professionals in private equity and VC jobs see further trouble on the financial horizon. Similar to what we saw in the hedge fund industry, this year’s private equity and VC report reveals that 47 percent are happy with their current level of compensation – an 80 percent increase in pay satisfaction from last year! And why not? The average total compensation, industry-wide, was $255,000 USD – up 14 percent from last year’s figure of $224,000.
The highest private equity earnings by title include CFO, Partner or Principal, Managing Director, and Vice President. Some of the biggest pay jumps are from Analyst to Senior Analyst, from Senior Analyst to Associate, and from Associate to Senior Associate. We see these jumps in early career roles as standard in the industry. Where the standard breaks down is in the mid-level roles, especially when carry comes into play. Roughly speaking, a Partner earns four times what an Analyst earns, and twice what an Associate earns.
We found that the large earning ranges were primarily driven by the size of bonuses. Private equity bonuses percentages vary significantly and, as expected, typically the higher in the firm’s food chain, the bigger the bonus – but not always. Although the average bonus received was 29 percent of total compensation, 15 percent of respondents received no bonus at all. Analyst roles show the least variability in bonus size. Some of the greatest bonus opportunities for early career professionals are at the Associate level. Depending on the fund and performance, the Associate role is capable of Partner-level income, with total compensation nearing a million dollars. When interviewing for a new position, asking what the average Associate level bonus was last year is good indicator of what is possible in terms of income.
It turns out that size does matter and that bigger is better as compensation varied by fund size and performance. We found that funds in the mid range ($100 to $500 million) raise the bar when it comes to private equity compensation. It is worth noting that high performance at a small fund can pay off very well for junior employees and that the Analyst pay curve is actually slightly U-shaped, suggesting that starting at a small fund may be a good career move as long as it is followed up with a move to a fund with over $500 million to reap the benefits at the Associate level, where the disparity can be 70 percent or higher.
In private equity and venture capital firms, for the most part, when the fund performs well employees are paid well. For those funds that performed well (nearly 60 percent were up last year), the average compensation was over $260,000. When looking at fund performance, the lowest private equity pay did, in fact, go to those in the lowest performing funds. The second lowest level of compensation went to those who stated they did not know the fund’s performance. This could be an alternate answer for poor performance, or the firm’s leadership did not share performance numbers, or these respondents simply did not want to share performance numbers.
Different from the 2008 hedge fund compensation report, we found that MBAs in private equity on average were earning $16,000 more than non-MBA’s. Although an MBA is not always required in private equity and VC careers, over half of the respondents have an MBA and our private equity jobs database indicates that many open positions still request (and sometimes require) an MBA. Perhaps the most important finding on the MBA front is that over 70 percent of Partners have an MBA.
When we surveyed those in hedge fund careers, we found that they work manageable work schedules, with the most working between 40-60 hours per week. The majority of those in private equity and VC reported working 50-70 hours per week. Perhaps the most interesting finding in private equity work environment and balance is a direct correlation between hours worked and total compensation earned. Those putting in 70 hours per week earn over $375,000 and that number climbs over $400,000 for those putting in 80 hours per week. More time in the office really does pay off, that is up to 90 hours per week, then it drops off precipitously. We believe this high level of hours is a result of a firm’s culture and it is working. Among respondents working more than 70 hours per week, a full third reported their fund was up 25 percent or more, whereas for those working less, only 13 percent reported that level of fund performance. When it comes to vacation earned, the numbers are pretty generous. 75 percent earned 3 weeks or more, although on average they took just over 2.5 weeks off.
With regard to industry experience, the respondents are close to evenly split above and below the 10 year mark in work experience. The corresponding number, for industry experience, is just below 5 years. There is strong representation in the mid-career stage and just over 40 percent have between 2 to 5 years in the industry. Of course, all of those with over 20 years of industry experience are in senior roles but about 10 percent of those in senior roles have less than 2 years in the industry. Even a few with little total work experience are in senior roles, showing that there do exist fast track and entrepreneurial opportunities.
We found that sharing in the upside was more common than in the hedge fund industry, where 70 percent say they receive no carry. In private equity, 54 percent receive some carry. Interestingly, upside sharing for CFO’s is only 50 percent, despite CFO being the most highly compensated role on average. Senior Associates and more junior employees who receive carry are, predictably, almost exclusively at the 2 percent level or below. We found that 8 out of 10 with carry report having a vesting period and the majority reported a period of between 3 and 6 years to be fully vested.
Unlike last year, job security is an issue. 43 percent of private equity and VC professionals stated they are somewhat concerned about their jobs and 16 percent said they are very concerned. The majority of these respondents said they were concerned about their firm’s ability to raise the next fund. With portfolio companies facing tough times ahead, it becomes harder to present investors with a plan that lays out a clear path for a successful exit strategy.
Those who are without concern for their jobs were pretty clear on the reasons why; either they were at the top of the firm’s totem pole, their firms had just completed raising a fund or their firm specializes in distressed investments – which presents more opportunity than concern for these firms in this financial environment.
We’ve put a great deal of effort into the 2008 Private Equity Compensation Report and hope that you will find the results both insightful and helpful as you navigate the current job market. If you have questions or comments regarding the survey, please use the Contact Us link to drop us a line.
