Private equity firms continue to struggle with the ongoing talent shortage, causing them to significantly increase the cash compensation on offer, executive search firm Eastward Partners said in its latest Year in Review Market Report.
The trend is expected to continue this year as firms try to poach talent from one another. And compensation has risen across the spectrum of seniority so much that firms will need to “get very creative” with what they offer, said Brett Vecchio, associate partner and head of private equity at Eastward.
According to the report, 65 percent of private equity professionals received an increase in base compensation last year.
Vecchio said that people aren’t changing roles frequently, which means enticing people away from their current roles requires stumping up more compensation, often in the form of higher base salaries and an equity portion.
The report found that compensation for a wide array of private equity professionals increased from 50 percent to 200 percent. Even junior staff are seeing the benefits of the hiring struggle, with overall median base compensation increasing by 26 percent in the last two years.
Vecchio said that compensation increases are not unexpected, but he was surprised that firms are now offering equity profit interests or co-investment opportunities to people not at the C-level. He expects such compensation offers to continue this year as well.
But he did note that the inflated salary offerings and equity grants will be challenging for firms to sustain and will lead to some “creative” compensation strategies that go beyond cash numbers.
“There’s only so aggressive you can get on base and bonus. I think firms will get very creative and competitive with what they offer people,” Vecchio said. “Firms are now, and will continue to, prioritize talent and take care of talent. Beyond just hiring, firms want to be able to keep the people they have, so there will be more emphasis on culture and giving people a bigger voice in the firm.”