In this video Gail discusses best practice for benchmarking salaries for private equity funds and how to make sure you get your compensation plan and pay grades as accurate as possible.

If you would like to watch the video and you are reading this through RSS feed or e-mail, please click this link.

2010 was a busy year and 2011 has started well. We’re delighted that more than 100 of our candidates started in new jobs with our clients last year. And this year has started equally well with another eighteen taking up their posts in the New Year.

Our placement split by level has remained consistent with analyst and associates entering into private equity for the first time representing about 60% of our placements and the balance splitting roughly equally between mid level and senior hires.  We’ve seen some trends and also some fashions. The main trend has been towards growing investor relations and fund raising teams. There’s also been a significant shift in skill set for these teams, particularly at the junior and mid level. We used to search for communications professionals. That’s no longer the case with a definite trend towards numerate analysts who can also write good English and have the personality and style to contribute in an IR role. Our shortlists for an entry level IR role now look pretty much like our shortlists for an investment associate.

Fashions: well a strong requirement for Scandinavians came and went as demand was satisfied and Turkish speaking is now in vogue. As ever, associates need to be top ranked to succeed in the competitive recruitment market for private equity irrespective of language skills or cultural background.  Bankers made up 75% of our associate placements with consultants and professional service firm candidates representing only 1:4.  I’m not sure if this ratio will remain for 2011 as bankers, particularly at associate level, are pricing themselves out of the private equity market with big packages.  And whilst our sector continues to be inspirational for many people, the lure of associate packages in the banks may well mean we lose some off our shortlists – perhaps that is what the banks want!  So we may be looking further down the tree at more junior analysts or wider afield at more diverse backgrounds. More...

We’re delighted to let you know that we now have a permanent office in the heart of Munich. This is an important milestone in the development of PER and gives us a chance to work more closely with local private equity and venture capital clients as a specialist adviser on identifying, developing and retaining talent at all levels.

Rupert Bell joined PER in the summer and since September has been based full time in Munich. Rupert comes to us with a strong background over 13 years in mid-market investing in the UK, with firms including 3i, Sand Aire and Octopus. He trained as a chartered accountant in corporate recovery with Arthur Andersen, and then worked in the head office corporate finance team at the P&O Group in London for three years before moving into private equity in 1997. He speaks fluent German and French as well as English.

“Coming to Munich to develop PER’s European business is a great opportunity,” says Rupert. “The firm has had many great relationships in Germany and neighbouring countries for years, but being here on the ground full time just allows us to do so much more. The local market is recovering from the recession quite quickly and there is a clear market need for a specialist recruiter who can access high quality candidates from within Germany and outside. In addition, our direct experience as investors ourselves enables us to assess candidates critically at both technical and cultural levels: in a very real sense, we are private equity people for private equity people.”

More...

After a challenging year in terms of mandates, the announcement of the investment banking analyst bonuses and pay reviews this summer was eagerly awaited. There was speculation on whether base salaries for 2010/2011 would be maintained at the same levels as last year when there was a significant uplift, or if they would be increased again.

In the event, there was no uplift for analysts.  The analyst base salaries remained at or around the same levels as last summer.  Bonuses were also more conservative this year with an average of 50% for first year analysts, 70% for second year analysts and 90% for third year analysts.

We’ve seen evidence of dwindling numbers of second and third year analysts, with significant departures early on in the year and following the summer bonuses, as private equity funds began to pick through the star analysts within the banks for the first time in a year.  The new analyst intakes have nearly doubled for 2010/2011 in an attempt to compensate for the reductions in team numbers in a market quickly gaining momentum. Salaries for analysts starting now, i.e. class of 2010 are in the range of £40,000 to £45,000 across the major banks. More...

The first half of 2010 has been a good one across the Nordic region. Already this month it has been announced that two new funds have been raised – by HitecVision and Polaris – in both instances the largest funds these firms have raised. Investor interest in private equity in the Nordics has held up well, with both funds attracting new LPs from a more international investor base across Europe and the US. This follows on the heels of the successful fundraising efforts of a number of Nordic funds in 2009, a time when most international funds found fundraising much harder going.

We’ve seen these successes reflected in the recruitment in the region over the first half of this year with a strong pick-up after a relatively quiet 2009. A number of funds started to recruit towards the end of Q1 and are continuing in Q2, often recruiting for multiple hires.

This reflects trends in the UK and elsewhere. Much of the hiring is for associates as funds bring new talent into the firm, having perhaps not recruited in 2009 or even in 2008. There is concern that a talent gap may result if the investment managers of the future are not identified now.

Another key trend for this year is the demand for Finns, Danes and Norwegians. We’re regularly asked by clients, those of Swedish origin in particular, to help diversify their language base with the recruitment of star candidates with native fluency in Danish, Norwegian and Finnish. Our experience confirms their impression that strong Swedish candidates are easier to identify and there are some super candidates in the investment banks and consultancies. But their Nordic brethren from their neighbouring countries are harder to find. There are simply fewer of them, especially in the investment banks.More...

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 1^st year, 2^nd year and 3^rd 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...

Did you know that women represent half of all professionals entering finance, but by VP level the proportion has dropped substantially?   Is this the same for private equity?   The answer is yes – but from a lower entry base so the problem is magnified.    We’ve done some counting and whilst approximately 25% of junior private equity professionals are female* this proportion reduces to 10% by investment director and above.   You might ask - does it matter?   Well it should.

There are sound economic arguments for maintaining a good diverse mix within your team.  But the issue here is not so much accepting that diversity matters, which I think most people do, but focusing on the lack of upward movement or fall out that happens before the senior levels are reached.   Arguably you are losing some of your well trained skill base before you can really capitalise on all that input you gave in those early years.  And it is not all to do with leaving to have children.  It’s a bit more complicated than that.  There are real issues of women leaving to have families and then not being able to get back on the ladder. There also seem to be issues related to promotion and progression within the firm.

And the issues lie on both sides – the employer and the employee. 

For the private equity employer that wants to retain and promote its female staff the sorts of issues that it may need to tackle include:

·         Those difficult to eradicate unconscious biases and under the surface issues where unspoken and unconscious prejudices still exist.  For example an unconscious bias that might inhibit the promotion of women is how work is allocated to them.   Do you put your female team members on the most visible, promising investments? Or is there an unconscious bias that pushes them towards less high profile projects that might need a lot of attention but are not so well recognised when it comes to considering who makes it up the greasy pole

·         In order to recruit more women and retain them in the business you may have to positively discriminate – but a positive discrimination culture is not easy to achieve. It means saying things like it is ok for the main child carer in a family (usually the woman) not to participate in so much travel but that this opt out is not acceptable for other team members with children 

·      It requires real recognition of the struggle to juggle home and work and the support that is needed from the employer to do that without falling into the trap of unconscious bias or discrimination More...

At the beginning of the year, with all the uncertainty in the market, analysts and associates from banking became more and more interested in making a quick move into private equity. They fell into two groups: the ones that were genuinely interested in private equity, and the ones that saw private equity as an escape route from the crisis within their banks.

During this turmoil, the banking teams experienced a decrease in work activity, which combined with several rounds of redundancies made candidates more and more uncertain about their future and prompted them to become more open minded about their career options.

Salaries and bonuses were also uncertain. The market was predicting that it might be one of the lowest paid years in a long time. So in the first half, with limited work to do and with more time on their hands, candidates found themselves with the motivation and availability to interview for a new role.

As a result, banks saw a further outflow of people that had chosen to leave their teams as well as the earlier redundancies, and coinciding with an increasing feeling that the market was picking up again, the summer marked a clear shift in attitude.

Investment banking teams decided to give special attention to retaining staff.  Analysts and associates were given salary increases, with special attention being given to the middle levels, and workload increased. As a result they were getting increased exposure to transactions again and with limited numbers on the team, having to work very hard. The candidates that remain in each of the teams have become the “survivors” giving them confidence in their position within the bank.

So suddenly, the motivation and availability to interview for a new role changed.  Mid-year bonuses were not as low as expected and there is the expectation that year end bonuses given to associates will not be as low as they thought. The teams have more work and candidates are getting more exposure and more challenges.

The reality is: since the end of the summer, there are more opportunities for analysts and associates in private equity but less availability and willingness of the candidates to move. Star candidates are receiving multiple offers. Other stars prefer to hold on to their jobs for a while and gain more experience rather than move into a market that they perceive is still recovering.

What does this mean for your analyst and associate recruitment programme?  You may need to adapt to the new scale of salaries, recognizing that for many of the candidates, base salaries have increased by up to 20%.  Secondly, be willing to give a high level of involvement and exposure and make sure that this is communicated within the recruitment process. And lastly, move quickly. Once you find a star candidate, there is always the risk of losing them to the competition or to internal promotion.

Contact me if you would like to know more about the compensation increases we’re seeing and other remuneration benchmarks. maria.nieto@perecruit.com