Compensation

This past week Pitchbook released a fascinating look at CEO pay relative to employee pay for private companies backed by private equity (PE), venture capital (VC), or corporate venture capital (CVC).

If you follow politics and the newest rule changes on requirements for public companies, you know that beginning this year public companies are required to release data on the pay of their chief executives relative to the typical employee (median pay).

The Pitchbook study plays along with this requirement, but instead of focusing on public companies, Pitchbook’s study focuses on, as just mentioned, CEO pay relative to the median employee pay for companies backed by PE, VC, or CVC.

Take a Guess

Before looking, take a guess at what the ratio of CEO pay to median employee pay is at PE, VC, and CVC-backed companies.  Would you guess a ratio of 5?  That would mean that for a company with a CEO making $1 million per year, the median pay for an employee would be $200,000.

CEO Pay to Median Employee Pay with All Employees Included

The following is the first look at the figures.  Perhaps surprisingly (presuming you’re one of those individuals that thinks CEO pay is astronomically higher than non-CEO pay), the ratio of CEO pay to median employee pay at PE, VC, and CVC-backed companies is far from the 5 ratio suggested previously.  Instead, at the median, the typical CEO earns about $300,000 per year while the median employee pay is about $150,000.  This is a CEO/median employee pay ratio of 2.

Interestingly, at the maximum, the CEO pay to median employee pay ratio is on the low end at about 1.8 ($1.1 million/$600,000).

Source: Pitchbook

CEO Pay to Median Employee Pay with Non-Director Employees Included

In addition to the traditional reporting – i.e. including all employees – Pitchbook also released figures on the compensation of CEOs compared to non-director employees.  Unsurprisingly, the ratios are larger with this comparison. As reported in the following figure, the median ratio is about 3.8 ($300,000/$80,000).  This is a fair bit larger than the CEO pay to all employees median pay of 2.

Perhaps even more interesting than the jump in the pay ratio at the median is the pay ratio difference at the maximum.  For private companies backed by PEs, VCs, and CVCs, the ratio reported by Pitchbook comes out at about 5.5 ($1,100,000/$200,000).

If one believes some of the figures reported by public companies, the average CEO pay to median employee pay for public companies is a massive 204.  Perhaps it is beneficial to have PE, VC, and CVC backers?  Individuals running PEs, VCs and CVCs generally have a stronger incentive to control costs associated with corporate executives.

Source: Pitchbook

Conclusion

In an interesting look at CEO pay to median employee pay at companies backed by PEs, VCs, and CVCs, Pitchbook’s reported figures suggest a much lower ratio of CEO pay to median employee pay compared to public company ratios.  Why this is so is a topic for another day, but it does suggest some interesting dynamics in play when it comes to executive pay at public companies compared to private companies.

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Every year Job Search Digest reviews what happened with private equity cash compensation.  Would you guess cash earnings went up or down in 2016?  What percentage of earners made more than $1 million?  How many made less than $50,000?  Here’s a look.

The 2015 Picture

Before going into the 2016 results (the report’s entire results are available for purchase), here’s a look at how things looked in 2015.

In 2015, about 1% of respondents made over $1 million, while 6% made between $500,000 and $1 million, 18% made between $300,000 and $500,000, and 11% made between $250,000 and $300,000.

On the other end about 15% made between $200,000 and $250,000, about 20% made between $150,000 and $200,000, about 18% made between $100,000 and $150,000, about $10% made between $50,000 and $100,000, and only 1% made less than $50,000.

Source: Job Search Digest’s Private Equity & VC Compensation Report

The 2016 Picture

Shifting now to the 2016 picture, here’s that look.

Overall, about 1% of respondents said they made more than $1 million in 2016, about 8% of respondents said they made $500,000 to $1 million in 2016, about 23% of survey participants indicated they made between $300,000 and $500,000, about 11% made between $250,000 and $300,000, and 15% made between $200,000 and $250,000.

On the so-called lower end of the private equity earnings spectrum, about 20% of respondents said they made between $150,000 and $200,000, about 15% made between $100,000 and $150,000, and about 7% said they made between $50,000 and $100,000.  Not bad compared to pretty much any other industry.

Source: Job Search Digest’s Private Equity and VC Compensation Report

What Changed from 2015 to 2016?

With 2015 and 2016 both addressed, here’s a look at the difference.

Interestingly, a full 40% of survey participants said they made between 0 to 15% more than in 2015, while 28% of respondents indicated they made about the same in 2016 as in 2015.  Perhaps surprisingly – because of how low the figure is given the lumpy nature of private equity pay – only 7% of respondents said they made less in 2016 than in 2015.  About a fourth of respondents (24%) said they made 16% to 100% more in 2016 than in 2015.  Overall, 2016 was kind to the private equity industry.

Perhaps the biggest surprise from the report is how many survey participants indicated they made more than double in 2016 than in 2015.  Fascinatingly, only 1% of respondents made double what they made in 2016 compared to 2015.  Remember, the list of people responding to Job Search Digest’s report included many partners and other high level executives.  Perhaps a little disappointing on the high end of the spectrum, although if you’re lucky enough to be working in the private equity industry and earning average pay, you probably won’t get much sympathy from the average wage earner making $14 per hour.

Source: Job Search Digest’s Private Equity and VC Compensation Report

Conclusion

In a look at what’s going on with private equity earnings, Job Search Digest’s results indicate that about 65% of respondents made more in 2016 than in 2015, about 28% made the same as in 2015, and only about 7% made less in 2015 than in 2016.

Perhaps even more surprising is how many didn’t make $1 million or more.  Only about 1% of Job Search Digest’s survey participants made $1 million or more.  Only 1%!  Interestingly, about 43% made more than $250,000, while only about 16% of survey respondents made less than 22%.  All in all, it’s a good time to be employed in the private equity industry.

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