Will you earn more as a private equity professional in 2021?

The world is in an economic downturn… or is it? Tell that to the private equity industry, where the pandemic appears to have had practically no effect on salary trends. If 57.5 percent of PE professionals received raises in 2019, a near-identical 57 percent saw fatter pay packets in 2020!

Is this in line with PE activity during the year?

How has hiring been affected?

This points to a talent war that is alive and kicking, and thereby bright prospects for private equity careers. The largest firms have substantial investment reserves, which they can scarcely afford to keep idle. And with more deals comes the need for more talent, both for investment and operations. There will be continued demand for investment professionals at the junior level and operational improvement people at the senior level.

What are the trends in compensation?

There is a change in the calculations behind compensation plans too. A survey by Heidrick & Struggles revealed that 15 percent of PE investment professionals had a formula-driven bonus plan, while 71 percent, it was discretionary. Within the latter group, variable compensation was fully discretionary for 63 percent, while 25 percent reported it was based on individual performance.

Interestingly, two-thirds of firms in the UK and Europe expect the bonus component for 2020 to stay on the same lines as in 2019, somewhat surprising given the low PE and VC activity in the earlier part of 2020. A huge majority — 86 percent — of firms expect higher compensation for their investment professionals posts the next review, though only up to 5 percent.

How has the split between base and bonus pay changed?

  • Up to 10 percent increase: 40 percent
  • 11–20 percent increase: 33 percent (approximate)
  • 21–50 percent increase: 23 percent

How total compensation will change is yet to be seen, given that bonuses would have been paid out just in December. Typically, half the total pay comes from variable compensation, with the most senior levels getting well above half their pay from variable compensation. Bonus calculations give weight to a combination of fund, firm, and individual performance. Since 2014, the share of bonus in total compensation has been declining for those who have reached senior levels in their private equity careers, though it is still high at firms employing more than 100 people.

Is certification helpful for getting higher pay in the PE industry?

An excellent certification choice is the Chartered Private Equity Professional (CPEP™) certification, offered by the United States Private Equity Council (USPEC). CPEP™ offers exactly what top private equity firms want — knowledge and appeal based on the rigorous USPEC IFIS™ body of knowledge, which gets them ready for great private equity careers.

Sr. Financial Advisor at PageGroup, New York.