PE associate comp

Hi Everyone,

I recently received an offer from a PE firm. The offer came in at lower than expected. The fund has done extremely well and it is definitely on a path to go somewhere. I love the culture, the location and the people. This is a partner track role and they mentioned multiple times in the interview that sky is the limit for top employees.

Having immediately spotted the offer is below market, I tried to negotiate higher to bring it to market and they declined my request.

Now if I take this offer, at these conditions, my financial situation would not improve from my current role (it will remain the same). However, I do recognize this is a better fund (I already work in a fund) and will provide better long term opportunities.

How would you react to this? Would you take it? Would you reject it with the hope they will come in higher? Would you try to negotiate again over the phone instead of email?

I feel this was a low ball offer but I'm trying to see the positives and be really happy and excited about the role because it is one I really desire.

 

Is this a lateral role at the same title or higher one? Is the current role and firm you’re in/with a partner track? Are you up for promotion in the near term at your current firm (a year or less), which would bump up the comp?

If it’s a higher title, and this is a bigger fund, you can make the case for more pay. Similarly, if you’re up for promotion at your current firm this year, that’s another thing you can bring up. The notion is, you have opportunity cost from leaving, so they should mitigate or eliminate that for you. Here I’m assuming you haven’t already brought this up. But if you have and they won’t budge, then that’s where they’re at - take it or leave it.

If it’s like-for-like title, and you’re ways away from a promotion, and they are a notable upgrade vs your current firm then it could be hard to negotiate for a better package. It all depends on your bargaining power.

I’d probably make sure there’s some clarity around promotion schedule, or look at progression of your potential future teammates careers at this new firm vs the current one. If it’s faster/better at the new firm (and you get more in the way of career development via responsibilities/better deal flow), then could be worth the no salary bump and giving up existing goodwill with current firm in the short term.

And if you were to negotiate, always better to do it via call or in person instead of email.

Pinging APAE in case he’s free to drop in with some wisdom.

 

Personally, I hate it when PE firms try to pull this. You say Midwest — with the description I could probably guess what firm this is.

My take is this. If it works out, great. You will be there for 10 years, a partner, and probably have much more carried interest.

If you screw anything up, and they fire you or you want to leave, you will be stuck with your below-market cash comp. Really, you are taking all of the risk.

Carried interest should be an incentive. Not take the place of a market base+salary. IMO.

Also, when they tell you it’s $30k/year, expect more like $15-20k year. Or really, two $40-50k payouts in year 4-6. It’s just how it really works out in the end...unless they hit home runs.

 
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Thanks for tagging me kanon. There are two things I'd share here.

One is a point about negotiation. As kanon said, it's imperative that you do this verbally. You really should aim to do this in person, but if that's not possible for some reason (e.g. the firm is in another geography and you've already traveled back), pick up the phone.

This is one thing I've noticed a lot of us in the younger generation (90s and onward) drop the ball on. There are certain business norms that are now incongruous with evolving social norms.

Ask someone under 30 what their primary communication app on their phone is; it's invariably something about texting (Messages, Whatsapp, etc.). Ask someone over 30 (maybe 35); it's invariably the phone. It reminds me of the Reddit joke: "There are two groups of people in the world: those who wipe standing up and those who wipe sitting down. Neither knows each other exist."

If you ever try to negotiate over writing, it's a no-no. We'll never know in this case because the ship has sailed, but they may have been willing to negotiate yet closed that door completely once you tried over email. Take it as a lesson learned. Happened to me once, never again.

The second thing is that I'd encourage you to think of the broader framework of 'compensation'. I wrote a lengthy comment about it in another thread:

APAE:
I would sidestep the question of cash compensation for a broader picture of compensation. I am now struggling to remember who first told me this (I've said it elsewhere on this site), but you should think of compensation as having two elements: the money you get paid that you benefit from today, and the skills and relationships you get 'paid' with that you'll benefit from tomorrow.

In your shoes, I'd spend all my energy assessing the culture and methodology of the firm.

  • Is this a place where senior people take the time to show junior investment staff the intricacies of each component of the deal process? Are you going to be given enough support on your first one or two processes to get your legs under you, then eventually enough leeway to stand on your own two feet and run with one yourself? Or is it a place where you're simply tossed work with a deadline and expected to piece together the bigger picture yourself on your own time.
  • Are people collegial and collaborative, helping each other out with projects? Or is it an atmosphere where people silo themselves and adopt a dog-eat-dog mentality?
  • Are the partners respected in the professional community? Do service providers (banks, lawyers, vendors like accounting / audit / tax), dealflow sources, industry executives, other investors speak of them favorably? Can you diligence this on both professional skill and personal behavior? Or do people speak neutrally or disfavorably ("I wouldn't let him into a process if he begged" / "Sure, I showed them something once, they soaked up a ton of time and never even submitted a bid at the end of it all")?

The real question is whether this is a place you feel like you'll learn a lot and grow into the investor you hope to be. This has an objective and subjective component. Objectively, you want to be someone who's knowledgeable about sourcing, structure, oversight, exit, and fundraising.

Layne Staley has some kind of heuristic around this that I vaguely recall having some kind of sports analogy, like the basics of pitching or something like that.

Subjectively, you want to be attuned to the specifics of:

  • sourcing for the industry(s), deal sizes, and deal types that help keep you jazzed to get up in the morning and do this job
  • structure in a way that lets you attract the opportunities you want to (e.g. being low-IQ about management participation on the cap table means sophisticated operators will probably sniff that out early in conversation with you and pursue a different financial partner)
  • oversight in the way that lets you live the dynamic you're comfortable in (e.g. do you like flying 10,000 feet high and getting fed stuff at the board level by an experienced set of operators you installed, allowing you to manage six boards personally ... or do you really like sitting behind the steering wheel and driving the whole bus yourself, restricting you to two boards and narrowing the type of executive who is a good match for you to those who can deal well with a lower level of autonomy)
  • an audience of qualified, credible, and motivated buyers whose personality and psychology you understand and grok with (strategics vary widely between industries [operators in the FIG universe tend to be pretty cerebral and also moderate to high in ego, vs. the stereotypical barrel-chested Midwestern steak-and-potatoes guys in a lot of industrials or manufacturing businesses], and the motivations strategics have are very different than those of sponsors)
  • fundraising from the type of LP you want to have in your vehicle (do you want five big LPs that are each 15-25% of your fund, or do you want 80 LPs and a really well built-out IR apparatus inside your business)

In short, this fixation on cash comp feels short-sighted. You should identify what type of investor you hope to grow into, then grid this opportunity against that. If it scores highly on these qualitative dimensions, you can more happily commit to a slightly-below market cash offer knowing that you're getting 'paid' with a bunch of intangibles that most people aren't thoughtful enough to identify.

Also, if this is a state like Texas or Florida, you're pretty much on par (maybe even ahead of) with your New York / California brethren on take-home pay. I would be explicit and ask your prospective employer if that was part of their calculus in setting the pay scale. Chances are it was. If I know I have to pay someone $250k in New York but I could put them Texas where ~$175k yields the same post-tax income, that feels fair to me.

Lastly, there's a huge difference between a firm size of $500m (total AUM) and a fund size of $500m (most recent vehicle). If it's the former, your comp offer is not unreasonable at all. If it's the latter, I think you have more wiggle room to negotiate upwards.

I hope this works out for you.

It seems like you've already done a lot of that calculus and are pretty happy about all the intangibles (promotion trajectory, firm performance, location, team dynamic, etc.).

If everything except cash comp is a biggreen flag, I'd say go ahead. One point is that if you do take the offer, you may want to briefly grab whoever you tried to negotiate with over email and apologize quickly.

It doesn't have to be traumatic, just say something like "Hey, I want to reiterate how happy I am to be here. I believe everyone owes it to themselves to try to maximize the value they receive so I think there's nothing wrong with negotiation, but when I was updating one of my mentors on this career move he told me I may have made a faux-pas by initiating things over email instead of in person or on the phone. I'm glad I learned that, and I wanted to close the loop quickly by letting you know I know that now. Thanks again for your attention and help through the interview process." It takes 30 seconds and will pay limitless dividends in the office psychology landscape.

Good luck and congrats on the offer.

I am permanently behind on PMs, it's not personal.
 

Two reasons. It indicates a lack of respect for the person you're dealing with and it shows you don't understand business norms.

First one - it's like breaking up over text or over the phone. If you really cared about the person but realized you needed to go a different direction, you'd look them in the face and talk about it. If the person doesn't matter to you, you may be cool not doing it in person.

Second one - a huge part of success in every professional endeavor is understanding the rules of that local game. Every person assessing a candidate is evaluating how well that candidate is going to assimilate. ("How will they click with the team? Can I trust this person to not embarrass us in client interactions, interviewing other hires, representing us at industry events?") Someone who can't take the time to ask around and learn the accepted behaviors around negotiation sure looks like someone who'll do the same in all the other hypothetical interpersonal scenarios above.

Some employers (more common in less formal industries) simply won't care; they will engage if you try to negotiate over email and won't hold it against you. The problem is that you simply don't know who those people will be, so you stick to the best practice and please all people.

In short, you can either look like a dick (one) or clueless (two). Neither are a winning ticket, and since you can't really identify who's an anomaly and doesn't mind, you take the safe route.

I am permanently behind on PMs, it's not personal.
 

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I am permanently behind on PMs, it's not personal.

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