MBA Remains Positive for Private Equity

by Geoff on March 12, 2015

One question that many private equity and venture capital professionals are faced with is whether or not to pursue further graduate level education. From a purely financial standpoint, individuals must weigh the costs of MBA programs and the future compensation advantages they may generate. But the decision is not purely financial. Professionals also must way the value of a new network for finding exciting opportunities, and the personal development gained along the way.

From the financial angle, our 2015 Private Equity and Venture Capital Compensation Report did find an advantage for MBA holders when it came to total compensation. In 2013, respondents with an MBA indicated they earned 19 percent more than their non-MBA peers. However, in the most recent survey, we saw this gap narrow to only 12 percent.

PE 2014 average comp

An interesting trend that we’ve noted in the past is that the gap in compensation is driven more by base compensation than it is by bonuses. One possible driver of this differential in base compensation may be that those with MBAs have greater access to the best positions through their well-developed networks. In addition, the credential may open up more senior level positions where base compensation is stronger, depending on the firm and individual’s experience. However this year, we saw that gap close among our survey respondents. In a stronger job market, the MBA may hold less of an advantage than what seemed to exist in leaner times where every possible edge was necessary to land top roles.

On the other hand, however, bonuses have been are largely comparable between those with and without an MBA for some time. Bonuses are driven largely by firm and individual performance. While an MBA may have some additional developed skills through their education, this may not be enough to dramatically tip the scales when it comes to bonuses. MBAs did earn higher bonuses than their non-MBA peers in 2014, both in nominal dollars and as a percentage of total compensation. Relative to total pay, however, the advantage was marginal.

Of course, pursuing an MBA to further one’s career in Private Equity or Venture Capital comes at a high cost. Top MBA programs can run about one-hundred thousand dollars, not including foregone earnings, so future graduates must be confident in their ability to land a role that can pay for this investment upon graduation. In many cases, this isn’t the reality, leaving the benefits of the MBA more intangible to some graduates.

 

 

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Many professionals in the private equity and venture capital industry wonder whether a potential move to a larger or smaller firm may result in higher compensation. According to the latest results from our 2015 Private Equity and Venture Capital Compensation Report, the overall difference in compensation in 2014 between firm sizes is marginal at best. However, this has not always been the case, and different compensation levels between firm sizes have been noted in previous reports.

Looking at our 2014 data, those working at firms with between 50 to 99 employees tended to earn the highest total compensation. However, these same professionals did not earn the highest salaries, which were reserved for those at firms with 10 to 24 employees. As firm size increased, we saw notable bonus compensation increases offset somewhat by a decline in base compensation. The one exception to this trend was compensation at the largest firms, with over 100 employees. In this example, we found that total compensation was lower than mid-size peers in both bonuses and base pay.

PE 2014 comp by firm size

In the past, we noted a stronger U-shape to the profile of total compensation by firm size. Those working at the smallest and largest firms tended to earn the highest compensation, while those at mid-size firms earned the least. This was partially explained by the reality that those at the smallest firms often have to wear many hats and carry a variety of responsibilities, while those at the largest firms benefited from the most stable client revenue streams, allowing their firms to offer higher total compensation.

The robust job market, which we have seen continue to strengthen in our survey results, is a key contributing factor to the flattening of the compensation profile by firm size. When high performing employees have the ability to jump ship to other firms, it forces all players to be more competitive in their total compensation offerings in order to retain their top talent.

Another factor in increasing pay equity across different firm sizes may be the additional transparency when it comes to compensation in the industry. Reports such as ours, and other data sources, allow professionals to better negotiate their pay within industry norms. On the flip side, companies are also better informed in offering pay packages within the ranges.

As long as we continue to experience a robust market, this trend is likely to continue in 2015. With both professionals and firms having better access to compensation data, and job opportunities aplenty, parity among firm sizes in compensation may be a trend that is here to stay, at least for the medium term.

 

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