Private equity firms are increasingly using transaction bonuses to attract and retain top-level executives as compensation expectations rise, according to a new report by ON Partners, a retained executive search firm. The company’s 2024 Private Equity Talent Trends Report, which drew on its own search data and insights from the People Analytics and Predictive AI platform HR Signal, identified transaction bonuses as one of five critical trends reshaping executive hiring and retention in the sector.
“Compensation expectations have risen across the board, but private equity stands out with the highest rate of increase compared to other sectors,” said Bryan Buck, an ON Partners managing partner. Buck said the private equity industry saw a 7.7 per cent average increase in total compensation, compared to much smaller gains in the private and public company sectors.
ON Partners’ research highlighted three common scenarios where transaction bonuses are used to keep and attract talent: retaining executives during downturns, hiring leaders closer to exit points who lack time to meet equity vesting requirements, and ensuring fair compensation for executives brought in to lead turnaround or “fix-it” efforts.
According to the United States Private Equity Council, a range of factors influence how pay is set in the industry, including firm size, experience, economic conditions, and fund performance. ON Partners’ findings suggest that as private equity firms face fewer new deals, they are focusing on improving existing portfolios and offering higher cash packages to seasoned executives who can deliver results.
The private equity industry has grown substantially, with U.S. firms increasing from 24 in 1980 to 17,000 this month, and the global market expanding to more than $8 trillion from $579 billion in 2000, according to October Marketplace data. ON Partners says this growth has fuelled demand for qualified executives across various sectors, including medical, real estate, and hospitality.
The report outlines five key trends that HR professionals, employers, and C-suite leaders can expect to shape the sector’s executive talent strategies in 2024.