As we approach the end of the first quarter, we have noticed that M&A advisors are back in action and business is reactivating. Banks are adjusting to the new tax regulations and are dealing with the fact that they lost or let go of many people last year. Now they are recruiting again and are feeling the stress of the shortage of people.
We have seen evidence of this in the significant increase of base salaries, especially for the associate pool. Many banks have readjusted their base salaries to guarantee a minimum fixed income. We were surprised to see increases of 23% to 75% for 1st year, 2nd year and 3rd year associates, respectively.
The bonus range has also increased at this level. Associate bankers are receiving bonuses from 90% up to an unprecedented 230%. Of course the range varies from bank to bank, but the reality is that they are trying to make sure that their associates do not suffer from the new tax regulations and are not only readjusting the base salaries, but also bonuses.
The way bonuses are structured is also changing. We are finding out that some banks are paying partly in cash and partly in long-term stocks at the associate level, which we had previously seen only at more senior levels. The cash component ranged between 65% to 75% and the stocks had a vesting period of 3 to 5 years.
Interestingly, associates acknowledge that they are an asset that is now scarce, especially the good ones. And even though their bonuses were part in stock, they are feeling very pleased about their new compensation levels. More...
Tags: attracting talent, bonuses, private equity, venture capital, recruitment, remuneration
managing change | private equity recruitment | remuneration | staff retention | team building
The Financial Times this week www.ft.com has some major comments on the upturn in banking sector recruitment – headlines such as ‘Headhunters set for wave of mandates’ and ‘Goldman bucks trend with hiring spree’ give optimistic messages to would be recruits. Some commentators believe that the teams were pared back too much and that they will need to re hire. This all fits in with the trends we have been seeing for star banking analyst and associate level candidates. But not so much with more experienced professionals. The demand for experience seems to be at a low. This seems a shame as there is some super experience out there in people who would contemplate a more flexible way of working. And you could benefit from their skills in a time efficient and cost effective way.
We see experienced investors contemplating a number of opportunities
The least likely outcome for these people seems to be more of the same. And most of the experienced investors we see rarely want more of the same and are looking for a new set of challenges. They consider with relish the prospect of working with an investment house that focuses on smaller deal sizes - it takes them back to what they used to do and why they came into private equity in the first place. You could access their experience in a full time partner role, use their track record in fund raising and strengthen the senior group or use them on a part time or advisory basis.
This serial role route gives you opportunity to access resource on a project by project basis or as an advisor, mentor or investment committee member or to focus on a particular portfolio issue or opportunity.
There is a stunning amount of talent locked up in experienced investors which could be tapped into in so many ways to help your fund be more successful. And yet so few funds take advantage of it.
I hope the private sector private equity community learns from this and grabs some of this extraordinary talent for itself. There are some great professionals out there who can make a difference very quickly.
Tags: attracting talent, private equity, venture capital, recession, management succession, mentoring, non-executive directors, redundancy, talent management
managing change | private equity recruitment | team building
Is the key to recruiting the best candidates a question of keeping up momentum and managing expectations? We’re often asked for advice on the best ways to run the recruitment process as many of our clients don’t recruit that often. We’ll take most of the strain on their behalf so all that many of our clients have to worry about is turning up at the right time for the interview, and remembering to take the candidate’s cv along with them.
However, once a star candidate has been identified, the recruiter needs to understand that they are not the only one doing the ‘buying’ and they will need to ‘sell’ the fund. There’s no doubt that there’s a huge amount of talent looking for work now and it’s a great time to be hiring. The difficulty funds are still finding is that the strongest candidates are often the people that everyone wants to employ. It’s not uncommon that the person a fund wants to make an offer to will be lining up two or three other offers at the same time. Arguably, the best way of maximising the chances of landing the strongest candidate is to keep up the momentum during the interview process and to manage expectations along the way. Whilst it sounds obvious, it’s surprising how many funds let time drift for weeks at a time without arranging further interviews or making an offer.
Recruitment is understandably often pushed down the fund’s list of priorities. However, by setting a timeline for the recruitment process and making sure that the candidate is clear about the process along the way, then the candidate will remain enthused about the opportunity and start to feel like part of the team. The strongest candidates will take into account how clear the messages coming out of the fund are, and how the fund organises itself in respect of the interviews. Interviews that are continually cancelled, rushed, or lack focus rarely create a good impression. First mover advantage is also important when making an offer as candidates will start to imagine themselves in the role and have a warm disposition to who gets there first. If a fund makes an offer first then it can also keep in contact with the candidate whilst they consider their options and make them feel wanted.
Expectation management is also important because it means a fund avoids spending time interviewing people who are unlikely to accept a position. This will mean making the role and responsibility of the position clear, and being upfront about the likely package. There’s nothing quite like dampening the enthusiasm of a preferred candidate by offering 10% less than they were expecting. Managing the candidate’s expectations will ensure that the chances of securing their services is maximised. Candidates also bear responsibility here. They too must be open with you and advise you of where they are with others. It never ceases to amaze me when they announce at the 11th hour that they have another offer on the table. It’s a bad strategy by the candidate because it puts the fund on the back foot and doesn’t give the fund the opportunity to be creative about the role or package. We therefore encourage our clients to question the candidate about where they are with other interviews, and we too do our best to ensure both parties are kept up to date.
It’s all part of your employer brand. Letting the process drift and offering below expectations is not a successful recruitment strategy. Maintaining momentum and managing expectations along the way will considerably enhance your chances of landing a star.
Tags: attracting talent, assessment days, employer brand, private equity, recruitment, remuneration, selection processes, venture capital
career development in private equity | communication | managing change | private equity recruitment | remuneration | team building
Verbal references can be extremely helpful, particularly if you follow Six Simple Steps. But first, please ask the candidate’s permission – it can cause a lot of problems if you ‘phone a friend’ who doesn’t know the candidate is considering a new role. Recruiters can sometimes work around this to get some outline views, but the best source of information will be the current or a recent line manager. A recent line manager is a good way of getting a real feel for the candidate in the workplace without them revealing that they are thinking of leaving. And if you can do this before the final round you can check out any negative comments with other referees and with the candidate and you have a slightly easier get out if the references are not as good as you had hoped. Post offer referencing can then focus on fact checking and not opinion.
The Six Simple Steps 1. Timing – take informal verbal references before the last round of interviews 2. Ask the candidate’s permission to speak to a current or recent line manager 3. Describe the job the candidate will be doing for you and the skills needed to be successful 4. Seek the referee’s opinion on the candidate’s abilities for that job 5. Discuss the candidate’s strengths 6. Explore the areas where the candidate would benefit from further development or training
And the reference provides so much more than comfort on whether to make an offer of employment. It can also provide some great pointers on how to manage the new recruit in order to get the best out of them. For example, I recently took a reference on a junior candidate where the referee said the candidate had sound opinions but was sometimes reticent to voice them. Their new manager will now have this in mind and can work to build the candidate’s confidence.
But what about when the reference isn’t as glowing as it might be? And this is where the timing of the reference taking can really help. You and the referee are in a potentially tricky position if you have already offered the candidate and they have already resigned or told their current company they are leaving. Do you tell them you are rescinding the offer because you received a poor reference? If this is something factual, for example they have misled you about their employment or academic achievements, then your reasons are easy to justify. But if a referee has given an opinion that you don’t like the sound of, what are your options? The candidate will want to know what was said and by whom, particularly if they have already resigned from their role. Do you tell them? Do you withdraw the offer with no reason? You can’t do this if you have already offered the role to them subject to references. You are about to have some uncomfortable conversations, and we haven’t even started talking about the legal problems related to the giving and taking of references.
Everything is easier if you get the references before offer stage. First of all, you are less time pressured, if you receive some poor comments then you can take more references and check these out – triangulate them with others. You can focus on the areas of concern in your later stage meetings and use probing questions to enable you to make your own judgement on the issue. And if you decide to say no, you are still in your interview rounds so are under no pressure to reveal the details surrounding your decision.
So they maybe Six Simple Steps – but getting the first one right is the key to success.
Tags: giving references, hr, people due diligence, private equity, recruitment, taking references, venture capital
communication | managing change | private equity recruitment | team building
We place a lot of people. We take a lot of references. But when people have already left their role, whether redundancy, resignation or under a compromise agreement, it always raises questions – well one question anyway: Why? It’s inevitable that leaving in these circumstances gets treated with suspicion. And when the person under scrutiny is perhaps the only team member leaving or one of a small number, the level of suspicion increases. Many firms have a restrictive reference policy and any formal reference request will be responded to with basic employment data. Many firms also have a policy of not allowing their team members to give personal references. And under most compromise agreements a reference statement is pre-agreed. Even if you talk to the decision maker regarding the redundancy they’re going to stick to their agreed line. After all it is probably what they told the candidate. They aren’t going to say we’ve chosen you for redundancy because we couldn’t stand working with you. They might say it’s because they were in the poorest performing group, or that they were involved with an investment that went sour – but I doubt it. Would you? What would you say? You’d say that you had to reduce costs and unfortunately he or she was in a team that was of less interest in the current climate so inevitably some hard choices had to be made in that team etc etc. Still, there are always rumours and gossip to fill in the gaps! From the candidate’s side, they will always have their list of referees prepared. But can these referees be trusted? Well, I would say, in general, yes. Most people in and around our industry give their honest and usually balanced view of the person – but remember it’s from the perspective that they have known the candidate. And when the referees are advisers or CEOs of investee businesses, they’ve usually been chosen because they were in a successful process. So their perspective is inevitably positive and maybe the candidate will be a source of more investment / more fees in the future if they help them get this job. Would the story be the same if the investment hadn’t happened? So, what can you do and what should you look out for. You should look out for consistent messages. Before you speak to anyone, look at the CV. Is this the first time the candidate has been selected for redundancy, or does it seem to happen every couple of years? It may be bad luck, it may be something else. Find out the candidate’s story for each situation and check it out. And when you find out the candidate’s story – ask them for it more than once. Do they tell a consistent story? Beware the story that changes in the telling. When taking references, talk to enough people to triangulate the story and look for consistency in the references: if three people tell you the candidate caused problems in the office then listen carefully. And if three people tell you that he or she always went the extra mile to get things done, well there’s something in it. But don’t forget the self interested perspective of the referee. At the end of the day, references can give pointers to likely behaviour. But you have to have your own opinion – and a probationary period. The last defence against a poor hiring decision. We hope it won’t come to that. I’ve just interviewed Henry Pugh of Risk Advisory Group – http://www.riskadvisory.net/ a professional reference taker and investigator of buy-out teams. He reckons on average one in ten investments don’t go ahead after reference taking. The full transcript of his interview is coming up.
Tags: compromise agreements, taking references, employer brand, giving references, people due diligence, private equity, venture capital
I was with a client a few days ago when an almost unheard of phrase was uttered ‘I wonder if we should let go of our weakest performers on a regular basis?’.
Private equity, as an industry, hasn’t really addressed the issue of poor performance in a consistent way. Yes, there are some exceptions, but I’m confident they’re in the minority. There’s a lot standing in the way of facing up to this: it isn’t easy to do, it isn’t pleasant to do and anyway if you ignore it long enough or make it uncomfortable enough for those you ‘suspect’ are the weakest – well maybe they’ll leave of their own accord.
I know, why not downgrade their bonus and they’ll get the message and it’ll sort itself out.
Well, get real! It won’t sort itself out. And what is worse, one of the biggest costs of not tackling poor performance is that it’s not the poor performers that will leave – it’s your star performers.
Going right back to my previous note on candidate appeal – the best people will be attracted by organisations staffed by stars. Good people thrive on the stimulation of working with other high performers. And conversely they’re likely to leave businesses where weaker performance is tolerated.
Everyone’s heard of the GE philosophy of ranking all their people and firing the bottom 10%. It may sound tough but high achievers applaud it.
The three lessons for private equity here are
• Objective performance measures need to be determined and applied consistently • A regular timetable of appraisal, promotion and termination needs to be put in place and adhered to • A culture that expects and values this needs to be created.
My experience of private equity bloodletting is that it is usually a knee jerk reaction in response to an external stimulus of some sort: a poor investment, economic circumstances, internal disagreement or at carry allocation time when dividing the pot between fewer people seems attractive to the managers. If you want to take the first step towards a more effective system then you need to be able to rank your people objectively, not just by gut feel. So start off by determining the qualities that you want to see and working out how you can measure them.
There are many HR outsourcing services you can use to help you in this. We can put you in touch with a few if you need a steer. You’ll probably find that your gut feel produced the same rankings as your objective system – but you now have a base from which you can build a sustainable model of refreshing your team from below and retaining and attracting high achievers at the top. Further success for your business will surely follow.
Tags: attracting talent, appraisal methods, employer brand, objective setting, performance measures, private equity, venture capital
career development in private equity | managing change | staff retention
The PER Blog contains my observations on the world of private equity and its people. Every day I meet and speak with people from across private equity giving me a broad view of the challenges and issues that they face in managing their businesses and their careers. And it allows me to understand and help resolve some of the human issues that affect the sector.
I hope you enjoy the PER Blog and that you’re able to take away one or two tips for getting the best out of yourself and the people around you. Let me know what you think, I look forward to your comments and feedback.
Gail McManus
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