In the financial sector, pay is, unsurprisingly, a big factor in employees’ satisfaction. What does Job Search Digest’s recent compensation report indicate happened with pay changes in the past year? Here’s a look.
Change in Pay from 2013 to 2014
The first measure compares the growth in pay from 2013 to 2014 among firms operating in the private equity and venture capital space. Fascinatingly, pay grew much quicker among venture capital firms than it did among private equity firms. Overall, combining base and bonus pay, compensation grew about 21 percent for employees of venture capital firms, while pay only expanded about 9 percent for employees of private equity firms.
What’s behind the large differential? Bonuses.
Base pay at private equity and venture capital firms increased at about the same rate (private equity up about 6 percent and venture capital firms up about 7 percent).
Bonus pay, on the other hand, exploded for venture capital firms. Bonus pay was up about 17 percent for the earlier stage professional investors, while bonuses were only up about 7 percent among private equity firms.
Performance
If you talk to any financial economist, they’ll mention that pay is only one half of the story. The other half is performance. Here is a look at how funds performed last year according to Job Search Digest’s survey.
Interestingly, most of the respondents’ funds performed quite well, with about 48 percent of all funds up between 10 percent and 24 percent. Perhaps a little surprising given the 13 percent return of the S&P 500 in 2014, almost a quarter of all venture capital and private equity funds returned more than 25 percent, soundly beating the popular index.
Also interesting is the observation that only 2 percent lost money, 9 percent were even, and 20 percent gained between 1 percent and 9 percent in value.
Did the Managers’ Performance Warrant the Bonuses Paid?
Now to the question that really matters – were the managers of the private equity and venture capital firms worth the bonuses paid? Or would it have been better for investors to simply have put their money in passively managed index funds?
With the caveat that Job Search Digest’s surveys are for compensation comparison purposes only, one could certainly do some back of the envelope calculations on if they think the management fees were worth it. In doing a weighted average of return, the private equity/venture capital industry returned on a fee-adjusted basis 16 percent. The 16 percent certainly beats the S&P 500’s 13 percent.
Additionally, the 16 percent implies that about 60 percent of private equity/venture capital funds beat the S&P 500 index.
Conclusion
Overall, Job Search Digest’s recent indications on pay changes from 2013 to 2014 provide an interesting contrast in the state of the two industries. The results found that pay grew much quicker in the venture capital industry than in the private equity industry, a differential of about 12 percent.
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