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Private Equity and Venture Backed Executive Compensation packages Specifically in regards to equity ownership.
Hello! Thanks for your question about private equity and venture backed executive compensation packages. The short version is that on average, private equity firms pay their executive team around $200-300k with around 3-5% equity/carry. However, depending on their revenue and sector, this number changes. The general trend is that technology companies are increasing executive pay more than other industries. Some sources indicate that public firms are a good go-to for private equity trends. Below you will find a deep dive of my findings.
Private Equity EXECUTIVE Compensation Packages
Private equity firm's overall compensation has increased a fair bit across the board from 2014 to 2016, with the greatest increase for managing partners at 17.4% (1.35 million to 1.58 million). According to a 2016 North American Private Equity Survey, private equity firms hit an all time high in 2015, with a value of $392 billion. Smaller companies similar to the company mentioned in the request, have experienced the most significant changes in compensation rates in the past few years. The survey found that, "Associates and Senior Associates with funds less than $250 million received a 38.2% increase in their 2015 bonus, resulting in a total salary increase from $133,000 in 2014 to $175,000 in 2015."
A Chief Executive Research report from 2014 found that the CEO and the President are the most compensated executives, with a total compensation package averaging around $271,000. The senior operations executive (COO) are second with a compensation package around $225,000. The 2016 Executive Compensation Trend Report shows a similar find that the CEO cash and equity compensation is around $275,000 for base salary and 5.2% equity for revenue over $10 million. Technology funds represent 85.7% of companies surveyed.
According to PwC’s 2016 US Private Equity Portfolio Company Stock Compensation Survey, stock options are the most common form of equity compensation as well as cash compensation for executives. Sponsors also continue to tie award vesting to performance-based conditions (full vesting requires IRR of 25% or MOIC of 3.0x). This is generally aligned with market competitive pay levels for public company executives. While this survey was not about the tech industry in particular, tech companies represented 21% of the companies examined. The survey also found that most sponsors which fell in the top three senior levels of management contributed $100 million or more in equity investments. Technology and life sciences respondents had a median participation rate of 6.9%.
A BDO survey found that CEO and CFO compensation varies by sector. It appears that tech companies are growing more quickly than the other sectors in terms of executive compensation. Private company CEOs received an average compensation package of $354,750, which includes bonuses and equity grants. CEOs in the technology sector that had companies with a revenue of over $100 million had the highest average compensation packages. In 2015, the tech CEO pay for public companies surpassed other industries with a 19% growth rate. A report by Chief Executive Research also found that, "CIOs and heads of R&D in tech companies and venture capital owned companies earned substantially more than their peers in other industries and ownership types."
The Chief Executive 2016-2017 CEO Senior Executive Compensation Report for Private Companies would be good source of information on this subject and I would recommend obtaining it for a more complete explanation. I, however, did not include this report in this research brief due to the cost.
Conclusion
To wrap it up, it is important to note that private equity compensation highly depends on the sector and the value of the company. However, the general trend is that technology companies are increasing executive pay more than other industries. Also, on average, private equity firms pay their executive team around $200-300k with around 3-5% equity/carry.
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