Last year US private equity executives recorded increases in total compensation of more than 100%, with the most senior taking home over $7m (€7.8m) on average, says a survey by William M Mercer, the human resource consultants.
The survey, of over 1,000 employees at 91 firms, said it did not anticipate the same level of increase for quite some time, with no significant gains expected in base salaries in 2002. In fact the depressed nature of the market currently would hit the carried interest component of remuneration, ensuring a sharp downturn in overall levels of pay.
Carried interest, known as carry, is the private equity firm's share of the profits on a fund it manages. Typically it takes a 20% cut, on top of a management fee, after it has cleared an agreed level of returns to its limited partners or investors in the fund. Carry is shared between the executives, and investors in a fund like to see it is split fairly across the firm to ensure all employees are incentivised.
The carry makes up the bulk of an investment executive's remuneration. Last year a managing general partner's base salary rose by just 19.2% to $538,000 from $451,300. However, their total packages, including annual incentive and carry, rose ahead of inflation by 150% to an average take-home of $7.7m, up from $3m.
While a robust exit climate prevailed, the good times rolled for executives across the board. Mid-level partners saw their average total compensation jump 130% from $487,200 to $1.1m. Junior partners were less fortunate, with a 110% rise to $493,200 and senior partners were almost at the bottom of the ladder with a humbling 86.6% increase to $2.6m.
However, significantly less carry filtered through to the junior players in the firms. Senior associates, associates and administrative managers all hovered around the 30% mark in their remuneration increases. In 2000, a senior associate could have expected to walk away with about $163,000 and an associate's pay packet would have bulged to about $123,000 on average.
Worst off were the analysts, whose pay gains were worth on average an extra $10,000, or a 15% increase to $75,300.