Study on exec compensation questioned by GPs

Chief executive officers of venture capital-backed companies are predicting deeper pockets in 2012, according to a new study.

CEOs of venture-funded companies estimate their total cash compensation to increase approximately 16 percent next year, with “roughly equivalent growth in base salary and performance bonuses”, according to a survey from ExpertCEO, a member organisation of more than 2,200 senior executives. Approximately 40 percent of the survey’s 110 respondents come from small to mid-sized venture capital-backed businesses. 

The estimate seem “very high considering where the market is”, said one partner of a New York-based law firm. 

“If anything we will see a reduction of average compensation as valuations are heading down and there will be less cash in the market,” said a separate VC fund manager. 

Venture-backed CEOs already command higher salaries relative to other private company executives, averaging $356,000 in annual salary for 2011, compared to $309,000 for heads of all other privately-owned businesses, according to the study. 

Venture capital firms often calculate executive compensation by sharing information across firms, said the first partner. Firms will compare notes on “different relevant positions so that we have a better understanding as to what is market, as defined by a sample size of hundreds of companies”. 

Recent venture capital performance figures may explain why venture-backed executives are expecting a pay hike. US venture capital fund valuations posted an 18.5 percent return for the 12-month period ending 31 March 2011, a significant increase compared to 13.5 percent for the year ending 31 December 2010, according to data from Cambridge Associates and trade body the National Venture Capital Association. On the fundraising front, 37 US venture capital funds raised a total of $2.7 billion during the second quarter of 2011.

A representative from the NVCA was not available for comment at press time.