PE, VC comp breaks records, but many aren’t satisfied – survey

Market conditions and employee expectations have led to a decline in reported happiness when it comes to remuneration, according to research from Benchmark Compensation.

The private equity market is booming and pay for PE and venture capital employees has increased, yet many aren’t satisfied – particularly those in accounting and controller roles – according to a survey by Benchmark Compensation.

The firm’s 2022 Private Equity VC Compensation Report found that 80 percent of respondents earn between $151,000 and $1 million – the highest percentage of market participants reporting earnings of more than $150,000 in the survey’s 15-year history.

The number of people who make $200,000 or less has shrunk over the past nine years. There was an additional 4 percent decline at the lower end of the pay range, following a 7 percent decline in those earning below $150,000 in 2020.

The firm surveyed hundreds of partners, principals and employees across a swathe of PE and VC organisations around the world, with a strong concentration in North America.

Regardless of job title, almost all respondents expected an increase in total compensation. A total of 59 percent of respondents expected to see greater cash earnings for 2021, with 41 percent earning the same or less than in 2020 – findings in line with that year’s results.

But although compensation is up, so is pay dissatisfaction, with 57 percent of respondents saying they were not happy with their earnings. Market conditions and employee expectations were the reasons cited by 62 percent of those dissatisfied.

Managing partners reported being happiest with their overall compensation. The most dramatic decline in reported happiness was among accountants/controllers. Chief financial officers, on the other hand, were by and large satisfied with their pay, with 64 percent of CFO respondents saying as much.

For the 36 percent of CFOs who reported that they were unhappy with their pay, carried interest was the most common reason – cited by 37 percent of respondents – for their dissatisfaction. Twenty-one percent blamed their own expectations and “other reasons” for their displeasure. The firm’s compensation formula was the reason 17 percent were unhappy. Market conditions were only cited as the cause of 4 percent of people’s unhappiness.

David Kochanek, publisher of PrivateEquityCompensation.com, said this dissatisfaction with pay, even when the market is strong, is often because investment professionals are not currently concerned about losing their jobs, but are also reading about the top performers and huge pay packages.

Views on job security are used to assess the health of the private equity and venture capital industry through the eyes of those working in it. A majority of respondents, 68 percent, were not concerned about their job security. Twenty-eight percent of those surveyed were somewhat concerned, down 5 percent from 2020, and those who were very concerned remained at 4 percent.

Bonuses and carry down

The report noted that 71 percent of respondents do not receive a bonus guarantee. However, employees at the largest firms can expect to earn more than triple the bonus pay of those at smaller firms.

The study found that bonus pay is typically calculated based on firm performance, fund performance, individual performance or a combination of two or more of these factors. The largest firms tend to pay out the largest bonuses based on individual performance.

Most employees said they made less in bonus pay compared with 2020. But overall, 61 percent of respondents expected to see greater cash earnings for 2021, with 39 percent earning the same or less than in 2020. Those earning between $501,000 and $1 million were the only group for which bonus pay was greater than base pay, though they also made slightly less in base pay in 2021.

Carried interest has also generally declined. Firms distributing more than 20 percent carry pool decreased by two percentage points last year to 16 percent after an equivalent increase in 2020. More than half – 54 percent – of firms offered the standard 20 percent carried interest pools, a two percentage-point decline from 2020.

The amount of firms with less than a 20 percent carry pool went up 4 percentage points from 2020.

Work experience continues to be the main driver of carry participation rates. Between 68 percent and 77 percent of those with 10 or more years of work experience received personal carry.

More hours doesn’t mean more comp

Hours worked per week does not correlate to overall compensation, according to the report. Comp for those working more than 100 hours a week was down in 2021 after an increase in 2020. Those working between 60 hours and 80 hours a week made more than those working up to 59 hours a week and those working more than 80. Most market participants (70 percent) work between 50 hours and 69 hours a week.

Only 18 percent of respondents were not happy with their work/life balance. Forty-four percent said they felt “average” satisfaction, and 38 percent reported “above average” satisfaction.

As far as the length of the working week was concerned, 82 percent of CFOs reported working between 40 and 60 hours per week.

The report also charts compensation on an hourly basis, providing useful insight into how much value firms place on an employee’s time. This offers private equity and venture capital professionals a yardstick by which to measure how the hours they have invested compare with others in the firm. Kochenick said that, on average, CFOs are paid quite well for the time they invest.

Poor in-house training

In-house training is an important aspect of recruitment and retention, the report noted. Yet previous surveys have shown that most market participants do not rate their firms’ in-house training highly, and that trend has continued. Half of respondents said their in-house training was weak or non-existent. Only 18 percent were satisfied with their firms’ programmes.

This article first appeared on affiliate title Private Funds CFO.