The below article was updated on 12/23 to include information about compensation trends for CFOs, obtained by Private Funds CFO, and additional illustrative charts.
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 conducted by Benchmark Compensation.
According to its 2022 Private Equity VC Compensation Report, 80 percent of respondents earn between $151,000 to $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 and less has shrank over the past nine years. There was an additional 4 percent decline at the lower end of the pay range, after last year’s 7 percent decline in those earning below $150,000.
The firm surveyed hundreds of partners, principals and employees across a large swathe of PE and VC organizations around the world, with a strong concentration in North America.
Regardless of job title, almost all respondents expect an increase in total compensation. A total of 59 percent of respondents expect to see greater cash earnings this year, with 41 percent earning the same or less than last year – findings in line with last year’s results.
But while 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. CFOs, on the other hand, are by and large — at 64 percent of CFO respondents — satisfied with their pay.
For the 36 percent of CFOs who report they are unhappy with their pay, carried interest was the most common reason – 37 percent of respondents – given 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 job, but 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, are not concerned about their job security. Twenty-eight percent of those surveyed are somewhat concerned, down 5 percent from last year, and those 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 bonus pay compared with last year. But overall, 61 percent of respondents expect to see greater cash earnings this year, with 39 percent earning the same or less than last year. 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 this year.
Carried interest has also generally declined. Firms distributing more than 20 percent carry pool decreased two percentage points this year to 16 percent after an equivalent increase last year. More than half – 54 percent – of firms offer the standard 20 percent carried interest pools, a two percentage-point decline from last year.
The amount of firms with less than a 20 percent carry pool went up 4 percentage points from last year.
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 receive 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 this year, after an increase last year. 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. Fourty-four percent said they felt ‘average’ satisfaction, and 38 percent reported ‘above average’ satisfaction.
As far as length of work week, 82 percent of CFOs report 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, which offers private equity and venture capital professionals a yardstick by which to measure how the hours they have invested compare to others in the firm. Kochenick said, 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 don’t 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’ programs.