Private Equity - Executive Comp Survey Data
Generally:
2018.Feb "Incentive Pay Practices: Privately Held Companies" - WorldatWork Survey, with updated info along the lines of what is shown below.
2016.Feb "2016 Incentive Pay Practices: Privately Held Companies" - WorldatWork's survey of 200 private companies includes detailed findings about short-term, long-term, and equity-based incentives, and concludes with separate results for family-owned companies. Here are some representative quotations from the survey:
- The spending on STIs has held constant at 5% of operating profit at median. However, the 75th percentile increased to 12% for 2015 and a planned 14% for 2016, up from 11%. This indicates that some companies are augmenting their STI budgets to compete for talent. In addition, family-owned companies spend 7% at median on STIs to help attract talent.
- Private companies continue to focus on profitability over revenue growth as performance measures in cash based short- and long-term incentive plans.
- Out of the 53% of private for-profit companies that offer an LTI plan, the vast majority offer only one LTI plan because of the complexity of setting up these plans.
- Now, four out of 10 private companies report using real equity — stock options and restricted stock.
- More than half of the companies use outside appraisal to value real equity.
- [The most common LTIs involved formula-based cash (44%), stock options (30%), restricted stock (22%), and phantom equity (14%).
2014.Aug.5 Equity Awards in PE-backed IPOs. This Towers Watson survey reviews IPO-related equity awards in 163 PE-backed companies over the period from 2007-2013.
2013. Undated Equity Award Practices for Portfolio Companies. For a fee, PwC offers surveys of equity award levels for executives, as well as key plan terms.
2013.May.2 How Private Equity Investors affect CEO Contracts (academic study). Two economics professors are about to publish the attached study about how CEO employment agreements change when their employers convert from public to private ownership. They focused on 20 companies that sold to the largest private equity firms, e.g. Blackstone, Carlyle, and Kohlberg. The general finding - that most CEO employment agreements underwent a major redesign – is not surprising. More interesting are the findings about particular changes that resulted, notably:
- A 25% increase in salary (for new hires) and bonus opportunities (for all).
- Performance-based bonuses calculated by reference to cash-flow based measures (EBITDA), with a shift “away from qualitative, non-financial, and earnings-based measures.”
- Internal rates of return (IRR) generally selected to measure for longer term performance.
- Exit events that commonly trigger vesting of about 50% of unvested equity awards, provided certain IRR or other return hurdles are satisfied.
- Severance pay multiples do not change, but most redesigned agreements provide for the forfeiture of unvested stock options, restricted stock, and other equity awards (with rights of first refusal that allow employers to repurchase vested equity).
- Perquisites that generally remain the same (e.g., tax gross-ups and company-provided aircraft).
- Regarding the sampled companies, the authors explained that large PE firms are generally in the best position to make value-maximizing decisions. The study is titled “CEO Contract Design: How Do Strong Principals Do It?” (forthcoming in Journal of Financial Economics).
ARTICLES
The articles below may be helpful survey data for starters,:
"Private Equity and Executive Compensation" - UCLA Law Review 2013.
- The evidence shows that private equity investors tie CEO pay much more closely to performance than do the boards of directors of otherwise similar public companies.
- The level of CEO pay in companies owned by private equity firms is statistically indistinguishable40 from the level of pay in comparison firms.41
“PE Headhunters finds exec comp on the rise" - PR Newswire Article
- "Based on the results from our survey, we see that compensation in the private equity and venture capital space has experienced significant growth," explained Frank Weston, Private Equity Headhunters' COO.
- "Managerial Incentive and Value Creation: Evidence from Private Equity" (Stanford Study 2009):
- Quote: “As shown in Table 5, the difference in variable pay share between PE firms and public companies is significant (with 95% confidence) in all columns. In the full specification reported in column (3), we find that PE-owned businesses tend to provide 12.7% higher variable pay shares than public companies.”
- Quote from Conclusion: “We find that top managers of PE-owned firms have substantially higher-powered compensation contracts than their counterparts at public companies: executives at PE-owned firms own more equity, have lower salaries, and get more of their annual cash compensation in variable pay than managers at public firms.”