The latest Private Equity Compensation Report uncovered that private equity and venture capital professionals continue to see increases in compensation. Even with some negative light shone on private equity during the election, the industry is poised for additional upside.
Private Equity in the Election
In the fall of 2012, the democrats tried to paint Mitt Romney and private equity as the enemy of the American economy. They said that private equity firms were only focused on the bottom line and would do anything to maximize returns — even if that meant destroying companies and firing all staff. Of course, the reality is that private equity and venture capital firms focus on growth, which helps both shareholders and employees alike.
The presidential election shone a light on private equity and raised some question about what lies ahead for these firms. The industry is performing well and, with hundreds of billions of dollars in “dry powder,” has a positive outlook. We predict that 2012 will bring with it healthy increases in compensation levels.
A New Game
Five to ten years ago, much of the discussion revolved around financial leverage. Leveraged buyouts were the key to unlocking quick return on investment. Today, firms have much larger portfolios because of longer holding periods (due to fewer exit opportunities).
The focus now is on growing both sales and margins in the portfolio companies, which improves the long term value. Deal structure is only the beginning. — private equity firms are assembling teams to execute a long term growth plan. Operational improvements combined with sales growth produce new levels of value.
Private Equity Pros are Enjoying Higher Compensation
The annual compensation report shows that both base salary and bonuses increased. More than 45 percent of professionals expect to wrap 2012 with double digit increases.
The average private equity employee earned more than $270,000 with bonuses making up a large chunk of that compensation. The top private equity pros saw their bonus comprise more than 60 percent of their total cash compensation.
The 2013 Private Equity Compensation Report is based on data collected directly from hundreds of private equity and venture capital partners and employees. The full report can be found at http://www.PrivateEquityCompensation.com
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