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PE firms not optimising portfolio companies’ exec compensation plans

Private equity-backed companies are not following best practices when it comes to incentivising and compensating their portfolio chief executives and senior executives, according to research by Chief Executive Group.

While 88.4 per cent of private equity backed companies employ formal annual incentive plans for top portfolio executives, only 68.1 per cent of these private equity backed companies employ formal long-term incentive plans and many of those that do are not competitive with venture capital backed companies and comparably sized public companies.
 
While base salaries, bonuses and equity incentives are competitive for median CEO and CFO positions, top quartile venture capital portfolio executives are better compensated than PE backed executives. When it comes to technology positions like the head of R&D and CIOs, the gap between venture capital and private equity backed firms get even larger.
 
Wayne Cooper, co-author of the 2013-2014 CEO & Senior Executive Compensation Report for Private Companies, says: “While the median private equity portfolio CEO is better compensated than CEOs of other private owners, the top performers are underpaid on average, suggesting that many PE firms are overpaying average performers and underpaying outstanding performers.
 
“Senior executive compensation and incentive plans are key to attracting, retaining and motivating top talent, yet few private equity firms are properly aligning their portfolio company’s CEO and executive compensation programmes effectively. There’s a lot of leverage in getting this right and applying competitive best practices.”

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