US private equity pay down 70 per cent

General partners surveyed by Mercer have reported a dramatic drop in personal compensation in 2001, with 15 per cent also saying that headcount at their firms was reduced.

( Senior executives in the private equity industry have seen their total compensation shrink almost 70 per cent, according to a survey released by Mercer Human Resource Consulting, a subsidiary of Marsh & McLennan Companies.


Managing general partners/chief executive officers saw their total compensation, which includes base salary, annual incentive and carried interest value, fall to $1.847m in 2001 from $6.081m in 2000.


Most positions saw their total compensation decline as well. For senior partners and executive vice presidents, the fall was a dramatic 80 per cent to $940,500 from more than $5m. Mid-level partners and senior vice presidents saw a 40 per cent decrease to $576,600 from $964,900.


Lower-level investment executives saw their overall compensation increase, however. Junior partners and vice presidents actually saw an increase of slightly less than 2 per cent to about $299,000 and senior associates saw a 5.3 per cent jump to $172,000.


The survey was conducted with data from 84 firms representing more than 1,000 employees. The survey reflected salary trends as of early 2002 for 11 positions in the private equity industry.


“Private equity firms had a difficult year in terms of compensation in 2001, largely the result of overall unfavourable economic conditions,” Stephen Brown, an executive compensation consultant for Mercer Human Resources in its New York office, said in the statement. “This environment has generally negatively impacted the value of portfolio companies, made it difficult to take such companies public, and therefore, did not produce the type of carried interest distributions observed in the past couple of years.”


The bulk of the lower compensation was due to the lowered value of carried interest. Cash compensation – salary plus annual incentive – actually increased for most positions, including a 17.1 per cent increase for managing general partners to $1,206,800 from $1,030,600.


“We expect that private equity firms will continue to provide growth opportunities in total cash compensation for their top performers,” Brown added. “The growth figures for total cash compensation reported in the past year possibly reflect that organizations let go of their least promising performers and focused on providing meaningful reward to their top performers.”


The survey reported that 15 per cent of the responding firms reported a reduction in head count.