The price of new talent

We’re not far away now from the 2014 recruiting season. In early spring (maybe even earlier), private equity firms will begin wining and dining young analysts from top investment banks like Goldman Sachs and JPMorgan to offer ‘pre-MBA’ positions.

Attracting the top talent is always a highly competitive process. So knowing what kind of compensation packages these junior-level professionals are being offered could give you a big advantage over your rivals.

Using non-public data provided by compensation consultants J. Thelander, who polled roughly 100 private equity and venture capital firms (predominately in the US) about their pay packages, we discovered the average pre-MBA analyst working in private equity can expect to make $168,487 in total compensation this year.

The data also show that total compensation levels are heavily determined by bonuses (and in a small percentage of cases, a slice of the carried interest). Our average junior associate expects to receive a $73,549 bonus this year – roughly the same as the $73,747 average bonus pre-MBA hires reported making in 2012.

That said, these averages cover a broad spread: the top pre-MBA associates can expect to be paid $300k-plus this year, while those at the bottom of the scale expect to take home somewhere between $60,000 and $100,000. Perhaps a more telling figure is the median, which shows the average pre-MBA associate making $100,000 in base salary this year plus an expected $59,280 bonus.

Compensation is also influenced by firm size. Your average pre-MBA analyst working for a firm managing less than $1 billion in assets can expect to make a total of $135,456 in 2013. For firms managing $1 billion to $2 billion in assets, the comparable figure is $173,370. And for firms managing between $2 billion and $5 billion in assets, it’s $198,997.

That’s not entirely surprising: on the face of it, it makes sense that larger firms with a greater asset base (and thus a higher fee income stream) can pay more.

However, something strange happens when you get to firms managing $5 billion or more: here, the average compensation package for pre-MBA associates drops to $173,701.

It’s possible young analysts are willing to accept slightly less take-home pay in exchange for the global exposure, high value networking opportunities and blockbuster resume points that mega-firms can offer.

But there’s also another theory: some in the industry speculate that the mega-firms are actually losing out on Wall Street’s best and brightest because certain mid-market firms are heading out extra-early in the recruiting season, to get to candidates first. If so, that might help to explain the pay discrepancy, too.

Ultimately, the pay package firms offer pre-MBA associates must be based on their resources, their philosophy and their best judgment. But knowing the going rate for these junior professionals certainly can’t hurt either.

Pre-MBA associates are just one position that private equity CFOs will need to consider as they begin their year-end budget planning. In the January edition of PE Manager, we’ll bring you a range of compensation data on various other job titles – including IR directors, HR managers, junior-level fund accountants and more. So stay tuned.