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Salary cuts bite European private capital execs

Some 15% of private capital executives saw a decrease in their year-on-year base salary in 2017, significantly higher than the 1% who reported a similar change last year.

European private capital markets have experienced a significant rise in the number of executives reporting base salary cuts in 2017, according to a report.

Heidrick & Struggles’ Private Capital Compensation Trends in Europe found that 15 percent of respondents reported a decrease in their year-on-year base salary in 2017, significantly higher than the 1 percent who announced a similar change last year. Similarly, 20 percent noted a decline in their bonuses in 2017, compared with 9 percent in 2016.

The proportion of executives reporting an increase to their base salary also fell to 33 percent, down from 41 percent last year. Bonuses were no exception to this slowdown, with the proportion of those receiving a larger sum falling to just 35 percent from 48 percent in 2016.

“I suspect that’s reflecting employers feeling that Brexit introduces a risk of a recession,” Simon Havers, consultant at executive recruiter Odgers Berndtson, told Private Equity International.

“Therefore they’re just looking to tighten their belts and make sure that their cost base is as tight as it can be going into a period of uncertainty. I don’t think it’s lost on continental Europeans that a cliff-edge, no-deal Brexit will affect everyone’s economies.”

Havers also attributed the decline in part to a reduction in deal activity and limited partners clamping down on excessive remuneration. “The fact that they have to consider is that the limited partners don’t like to see members of the GP team getting rich on their annual cash and bonus, because it compromises the alignment of interest that comes from the idea that you get rich from your carry, not from your annual cash,” he said.

The decline saw Germany overtake the UK to become the most highly compensated market in Europe for managing partners and partners of private capital firms, according to the report. On a scale assessing total compensation as it relates to the UK, which is given a score of 100, Germany was ranked at 115 this year, up from just 86 in 2016.

Southern Europe and the Benelux region were home to the next best compensated managing partners and partners, with a rating of 82. This is compared with a rating of just 62 in France, the worst performance in Europe.

The report analysed responses from 516 executives working in European private capital, including those who raise and retain capital, those who invest capital and those who work to improve returns.