Increases Across the Board for Private Equity and Venture Capital
Increases in compensation on a relative basis in the private equity and venture capital industries were fairly similar across the board in 2012, regardless of an individual’s position within the firm. According to our survey all employees, regardless of job title, saw an average increase in pay over the last year. While clearly increases would be nominally larger for those at the top of an organization, as a percentage of 2011 pay we saw fairly even distribution amongst most roles within our surveyed private equity and venture capital organizations.
Managing Partners see the Biggest Jump
The one major exception in our report was Managing Partners, who saw the biggest increase in compensation in 2012. Interestingly, this job title was the segment that saw the largest decrease in 2011, indicating the highly variable nature of pay in this role. In private equity and venture capital, these roles are compensated primarily through incentive pay which fluctuates alongside firm performance, which explains the substantial shift year to year. It’s an important reminder that while those at the top levels of an organization do earn exceptional compensation, it’s far from reliable in times of performance volatility.
Chief Financial Officers also beat the Average
Another role in which we saw a higher than average increase in pay was Chief Financial Officers. This change in pay likely reflects the growing regulatory burden placed upon hedge funds. For most jurisdictions today, Chief Financial Officers bare personal financial and legal responsibility for the financial reporting of their firms. As a result, individuals in these roles are demanding higher pay in order to compensate for their personal risk.
In addition to the added personal liability of the CFO role, the increasing regulatory and financial reporting burden itself is adding considerably to workload as well as staffing levels in terms of direct reports, which also warrants a higher level of compensation.
Outlook for 2013 Remains Positive
Our survey found that the majority of respondents, again across the organization, felt that the trend towards higher compensation would continue in 2013. With private equity and venture capital remaining a “go-to” choice for institutional and high net worth investors, these expectations are very reasonable. As the sector continues to expand, the demand for highly experienced professionals with direct experience will grow along with it, driving compensation higher. Whether you’re an analyst or an executive, you’ll stand to gain from the overall strength of the industry.