Tough market conditions are driving chairmen and non-executive directors across the private equity space to rethink remuneration structures according to the initial findings of a survey from specialist leadership consultancy Tyler Mangan and corporate finance advisory firm Clearwater Corporate Finance.
The preliminary responses suggest that changes in expectations, lengthening exit timescales and lower valuations are creating challenges for chairmen and forcing them to adjust compensation models. Around a third of management teams do not currently feel comfortable with their overall compensation, a clear indicator that the sector has an opportunity to reconsider how it incentivises and motivates senior management in the mid market in order to drive growth.
There is, however, evidence of this already taking place. Over half of the respondents feel that their responsibilities have altered over recent years and that they are now more closely involved in the business they chair/sit on the board of.
Tyler Mangan and Clearwater are hosting a forum aimed at chairmen to analyse these findings and provide an opportunity to discuss the management challenges in the private equity sector. The forum, which is taking place at the Haymarket Hotel in London on Wednesday 29 February, is an opportunity for chairmen and non-executive directors to meet like-minded individuals and discuss these issues, sharing experiences as to how they are grappling with restricted resources and driving growth, even under the current market pressures.
Jana Klimecki, director of Tyler Mangan, says: “Chairmen are increasingly under pressure to think creatively about how to motivate management teams in portfolio businesses, particularly in a period when growth and value creation can be difficult to achieve. We are looking forward to discussing these issues and collaborating with Clearwater in order to explore the survey findings and discuss innovative solutions with attendees.”
Marc Gillespie, partner at Clearwater Corporate Finance, says: “We are delighted that the Chairman’s forum has attracted such a positive response. Attendees with links to businesses including those backed by ECI, Matrix, Advent, Lyceum, LDC, Hg Capital and Apax will provide a wide cross section of experience and views on this important topic. Most respondents have reported that their businesses are performing well even in these challenging times, but Chairmen are today needing to be more closely involved with investee companies.
“Nearly all have been involved in discussions regarding changes to executive management compensation. We will be feeding back the collective views of the group on this important topic. In our working discussion, we intend to explore new ideas for ensuring that management incentives remain closely aligned with the goals of the PE investor, even when original investment expectations or risk profile have changed. We will be looking at how best to set short term success measures and rewards in a period of such economic uncertainty and volatility, and sharing views on ways of dealing with experienced or in experienced management teams.”
