How to Negotiate Comp - Lateral Principal/VP
Hi everyone. I recently received an offer to lateral to another PE fund as a VP/Principal. My prior firm's latest fund was $5-10bn and the new firm's latest fund is $2-3bn. My prior firm had attractive compensation for both cash comp and carry. The new firm, recognizing it's smaller, is offering substantially less comp (i.e., 30-50% reduction on both cash comp and carry).
How can I negotiate comp to try to get a better package? If I were joining a much smaller firm (say $500mm fund size), I wouldn't be trying to negotiate comp all that much as a firm of that size would likely be stretched to pay more (especially on the cash side, carry could have a bit of room for negotiation). However, at the $2-3bn fund size, I feel like that's a large enough fund where while the new firm may not be able to completely match my prior firm's comp, there should be room to move on both cash and carry and perhaps meet in the middle of where I was before and the new firm's initial offer. What do people think? Note based on the Heidrick report, relative to other funds of its size, the new firm appears to offer market comp.
The new firm will likely make arguments such as it would be unfair to pay me more than others at my level and that my prior firm's comp is irrelevant as it's a different firm of a different fund size. What are the best arguments I can make to improve my comp (both cash and carry)? Could I ask to receive the comp of the next title up and then have my comp frozen upon promotion? I recognize at the mid/senior PE levels, carry is much more valuable than cash and often easier for firms to give on, so I think focusing on the carry is likely the best strategy. That said, living in a tier 1 city with inflation where it is, taking a significant cash comp cut doesn't feel great and I would want to try to negotiate the cash comp as well.
In my experience, some of the larger firms will simply ask what you were making at your old firm and easily match it (even if you're coming from another large firm that pays well), as they can use their scale to attract talent. Perhaps my best argument is to mention my years of experience working at other good PE firms and that I'm confident and excited about the value I can add at the new firm from day one. I can also mention if the firm is willing to increase my comp, I will not mention my comp to any of the other individuals at my level in case the firm is worried about the others finding out.
Thank you for your help!
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Who has the leverage, i.e. why are you switching funds? If they reached out to you and are agressively recruiting you to join then you should have a lot of power (assuming you don't HAVE to make this move).
If it's the other way around then internally figure out what your bottom line is for making this switch (what point does the compensation outweigh whatever WLB, sector interest, strategty, etc. you find more appeaking) and negotiate around that (starting higher at first obviously).
My advice would be to make sure you see the forest through the trees - $500K worth of carry points is likely going to be a lot more valuable then $25K of base for example. So assuming you aren't loading up credit cards at your salary I'd think longer term first
Agree with above. Depends on motive as to why you are looking to move.
Agree with primary reasons for you moving before providing an answer.
On this point, would be interested to hear some views on this as I thought they're not supposed to and cannot ask for that based on fair equity comp laws, but in some places don't care about that or see whether the candidate will provide them this clarity so they know what you're making before. What do y'all typically do, provide or not provide?
Did something similar. Echo the post above - assuming you have some leverage over the new fund, I would (tactfully of course) emphasize that in negotiations. What do you bring to the table that will help the smaller fund grow? e.g. sector capabilities they're currently lacking, experience in a geography you can help them build out, a strong set of relationships you can leverage, etc. Need a vision for how your interests are aligned that will hopefully cause them to sweeten the deal
These are all great comments, thank you. This search was through a recruiter, so the headhunter reached out to me about the role. The reason for the switch is the larger firm I'm currently at pays well but has a bad WLB which, as I get older, realize is not what I'm looking for long term. The new firm has better WLB and a better culture (nicer people, etc.), which for me is worth taking a lower comp package, the question is whether those positive attributes are worth taking a ~40-50% haircut to comp. 20-30% would be much easier for me to accept if I can get the new firm to move a bit.
In the grand scheme of things, assuming the new firm performs well and the carry pays out, I'll still be earning a lot of money. In terms of my leverage, the new firm has mentioned how important fit is to them and the fact that they've interviewed a significant number of candidates for this role, which I think gives me some (but not necessarily a ton) of leverage.
I think rather than focusing the new firm on how much I'm making at my current firm (note the new firm never asked for my current comp) as the new firm doesn't seem to care, perhaps as others have noted I can focus more on my strong background and unique work experience that positions me well to add a lot of value to the new firm from day one.
Feel like this is a fairly straightforward negotiation point. You've already gotten through the interviews and the team wants you to join them. Clearly you are the best candidate they have found and it likely took them quite a while looking for the right person.
So now, you have to explain your circumstances to them. You're really excited to join the team, but you also need to make sure this makes financial sense for you and your family (?). Here's what I'm making now, and here's how much that haircut is that you're asking me to make. I'm willing to take a haircut, but not 40%. Can we meet in the middle.
It's important to figure out yourself where EXACTLY you want the comp to land. That way it's much easier to be specific on your ask. This isn't too crazy of a demand. Either they'll be willing to negotiate and make it work for you or they'll say what they're paying is fair and then it's your choice.
Ok ill ask what I know everyone wants to ask. What is the comp roughly going to and from? (Relevant to the discussion)
Agreed.
Are we talking all in of $500k cash + $4mm carry down to $250k cash and $2mm carry?
If so, hard pass.
$500K cash for Vp at a $2-3B recent fund size is actually market. Surprised this isn’t what they’re gonna pay you
Agree with what everyone said above. ~40-50% total cash decrease is pretty hefty. But at the end of the day, liking the people you work with is extremely important, hard to put a price on that.
As others have correctly said, you should try to get them to move up a bit and see if they're willing to stretch. I think that would be somewhat of an indicator in and of itself. Although they likely have bands they need to conform to, they can always find a way to bucket you in order to give you the bump you need, as in, calling you a 3rd year VP instead of others who might be more junior. You could also just ask for more carry, that is usually easier to grant than cash, so something else to think about.
The only other thought I had come to mind is, is the comp this firm offering below market? Or is your firm just away above market. I know there's a size discrepancy, but I wouldn't imagine that it's ~50%. Makes me think that you either have a really good package at your current firm, perhaps due to tenure, fund performance, etc. Or the current firm is underpaying. Either way, I think that determines how you can negotiate. If the firm you're going to is undermarket, it's easier to rightsize them. If they're squarely in the pay band for a MM fund, but your current firm is UMM and overpaying, then it's tougher to balance those. As long as the new firm is paying a solid market salary and they're willing to accomodate you to the best of your ability, that's all you can really ask for.
Thank you. I believe there are two things to figure out. One is what is a reasonable ask on my part to attempt to maximize my compensation package (by providing convincing arguments for why I should be paid more and without pissing off the new firm). The other is if they say no (or they only meet part of my ask), would I still be willing to take the offer. Many of the helpful posts above have noted it could be worth taking less pay if it means nicer people to work with and better WLB, which I completely agree with. As a result, I will likely take this offer even if they don't move substantially on comp. That said, I still want to make the best ask I can because (i) you never get a higher compensation package without asking and (ii) if my ask is not for all that much of a comp increase and they quickly say sure we can do that, then I'll always wonder how much more I could have gotten if I had asked for a better package.
Negotiation theory says it's better for your initial ask to be higher than where you're willing to settle. However, I think this is a delicate balance as with a smaller firm, you don't want to make an ask too high and risk pissing them off. That said, they've invested a lot of time in interviewing me and I feel like if my ask is in the middle of where I'm currently at and the new firm's offer, it's hard to see how they could get upset as I'm being fairly reasonable in trying to meet in the middle and am not asking a smaller fund to match my current firm's comp.
Without giving too many details, this is certainly not a case of my current comp being $500k cash and $4mm carry dollars at work and going down to $250k cash and $2mm carry (my current cash comp and carry is much higher).
Part of the reason for the 40-50% decline in cash comp and carry is that the new firm has a different title structure with more senior sounding titles than they actually are. As a result, they have asked me to take a slightly more junior role versus where I am now (even though my title would be unchanged). If I can get them to increase my title/role to come in slightly more senior (so that my responsibilities are in line with my current firm), then I think part of the comp gap will naturally narrow.
Seems to me like you should negotiate for the higher title. That will be more important than a bump in comp but a lower title in my opinion.
Do they call their immediate post MBAs VP and at your fund it’s post MBA + one promotion? If so you should definitely push for the higher title. How many years of experience total or years since MBA do you have? Feels to me like this is the key issue probably.
Worth saying that sometimes the WLB you sign up for changes after joining when there is a change in management, or turnover and the inability for the company to attract talent at lower comp relative to the market. Happened to me.
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