Typical Promote/Carry Employee Pool
Curious to hear what firms are splitting with employees on the promote/carried interest on either the fund or deal level.I work for a small-mid sized owner/operator/developer with two principals at the top running the show. Currently they put 12% of the Total Promote for every deal into the employee pool to be split between 4 teams, or a total of about 12 employees. This feels light to a number of us, especially the more senior level deal guys but curious to hear how other firms handle it. That also includes non-deal team members (I.e finance/accounting, marketing, ops, etc.).There's also no vesting period so you're handcuffed to stay until crystallization which I know isn't uncommon but would be interested in hearing what market is for others.
Also curious to hear how it works at other shops. I'm at a large developer. Corporate takes 60% of promote. The remaining 40% goes to the office running the deal, with MD/Partner level taking about 75% of the 40%. The rest gets handed out to the lower level staff. Not sure if that 75/25 split is firm and/or how it's divided up, but that's what I've heard. Any project fee revenue is kept for regional office expenses/overhead and not shared with national.
Your firm takes 60%????? Are you sure that’s right? I’m at a large national shop and I think it’s approx 5% of revenue (fee + promote) for us goes to the national overhead.
Can you give me an idea of what type of firm this is?
Yes, the firm takes 60% of the promote. That's the cost of doing business when you're not risking any of your own capital in the deals and get support in the form of brand recognition, capital relationships, etc from the company. My firm has a reputation for being generous with the profit share, so I assume this fee is similar, if not on the low end, for large development companies.
If you want to keep more of the promote, you'll have to either start your own firm, or become a principal at a small developer. Either way, you'll be putting up a significant portion of your net worth into the deals, and signing guarantees. There's no way around it. Not many people on WSO who claim to want to start their own shop really understand this trade off.
What size are your deals and about how many are you closing a year? My firm does 20% to employees that worked on the deal, to be split at dev leaderships discretion upon crystallization, then the rest to the firm and partners (I’m not sure how this gets split). Why are accountants and ops guys at your firm getting promote? Is your shop super small and they are integral parts of the deal?
2 principals, 6 on the deal team (4 in Acq/AM and 2 Const/Dev) and about 4-5 people in ops. We run lean which is why I think they're including the ops team in the promote pool albeit I'm assuming at a lower allocation than the deal team. So essentially the principals are pocketing nearly 90% of every promote which just feels high given how lean we run.We try to run about 3-4 development deals at any given time with the goal of exiting 1-2 a year. Promotes are typically in the $5-$15m range upon crystallization and can be much larger if we outperform. We also have a legacy portfolio of about 10m SF that we manage.
Most people won’t like to hear this, but if the principals are putting in, and risking, 100% of the money, they can take as much promote as they want. There is no need to share. All they need to do is pay employees market compensation. Whether that’s a mix of cash or deferred comp., that’s up to them. But if they can pay you 100% of market all cash, than that’s great.
For example, at my firm, no one gets promote. But we all make cash bonuses at or above market comp. Can’t really be upset if I’m not risking millions. Also, personally, would take cash over carry any day. It’s not deferred and can’t go to zero.
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