Key Terms in Principal / MD Negotiations

Currently negotiating a principal / MD (level below partner) role and working on retaining legal representation and an exec advisory consultant. They'll help me on the final paperwork and benchmarking what I should be asking for, but wanted to ask people here as well what terms they've most hotly negotiated.

I'd be the second person joining the fund (currently a one-man team) that has had first close on $100M and is about to do final close on ~$200M raised without me.

Private Equity Interview Course

  • 2,447 questions - 203 PE funds. Crowdsourced from 750k+ members
  • 9 Detailed LBO Modeling Tests and 15+ hours of video solutions.
  • Trusted by over 1,000 aspiring private equity professionals just like you.

Comments (12)

  • Associate 3 in PE - LBOs
Mar 24, 2021 - 1:43pm

Make sure non-compete is very limited in term & specific.  You don't want to have a 12 month noncompete that applies to all PE esque work hanging over you

Make sure definition of Cause is very limited.  If it's broad they can fire you, claim it was for Cause, and usually take back your vested carry

Pay attention to what happens under different termination scenarios - voluntary, involuntary (with/without Cause), etc.

Pay attention to carry vesting schedule and make sure sensible

  • Associate 3 in PE - LBOs
Mar 26, 2021 - 1:18pm

it's very common but optically i might not outwardly make it obvious that you are as it sets a sort of transactional/unfriendly tone IMO.  so like incorporate your counsel's material comments but don't have them directly looped into anything or do typical lawyerly bs

Mar 28, 2021 - 5:10pm

Are you negotiating your terms of employment or are you looking to amend the GP Agreement?

In addition to the stuff above, consider also making sure you can retain appropriate deal attribution when leaving, access to documents for boards you served on (so you can speak to past investments intelligibly in interviews or with prospective LPs), select information rights regarding investments you actually have (such as annual meeting materials), the ability to get answers to tax inquiries from your tax advisor or at least quarterly estimates for your capital account...

You don't have to sort all of this out when getting hired, but you certainly could if you wanted to avoid having to do it upon departure.

CompBanker

  • 2
Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
  • Associate 3 in PE - LBOs
Mar 31, 2021 - 11:51pm

Thanks! I'm a few years junior but wanted to ask: 

1. What does it mean by deal attribution? Is it a right to talk about it?

2. Are these exit information rights typically written in to the employment agreement?

Apr 4, 2021 - 4:34pm

Deal attribution is basically the ability to claim ownership over certain deals. When a partner leaves a PE firm, sometimes they use their deals to go and fundraise at their next firm. Usually which deals belong to the departing partner and which belong to the remaining partners is negotiated upon separation.

Exit info rights are not typically written into the employment agreement, but they can possibly be found in the GP agreement.

CompBanker

Mar 29, 2021 - 2:46pm

To be honest if you need representation to negotiate an employment agreement what does that say about your ability as Principal or MD to negotiate a future CEO's employment agreement.? May look weak since Principals and MDs are expected to weigh in and have a firm grasp of all the terms of an employment agreement for their portcos. 

Most Helpful
Mar 30, 2021 - 1:37am

It says they understand the limitations of their own knowledge and, rather than wing it, they consult people who have relevant knowledge/experience? What Principal/MD wouldn't have legal counsel involved in substantive negotiations?

Mar 30, 2021 - 5:33pm

Disagree. If you can't comfortably negotiate the basic terms (e.g., severance, cause, non-compete, non-solicit, carry vesting schedule, release language, non-disparagement etc.) of an employment agreement than that is a bad look. Sure it's fine to have a lawyer make sure it's drafted appropriately, but not having a grasp of the key business terms doesn't look great since Principals and Partners negotiate these all the time. The deal team almost always submits a term sheet first before any lawyers would get involved. 

Mar 30, 2021 - 11:29pm

Why does retaining counsel imply that someone isn't able to "comfortably negotiate the basic terms"? That's the critical assumption you're making, which is flawed. Of course a senior deal team member should understand key legal concepts that they are responsible for negotiating as part of their job, but it'd be a counter-productive (and pointless) flex to not hire a lawyer in this scenario. Are you going to inform your prospective employer that you chose not to hire a lawyer because you're so good at negotiating these terms yourself?

Also, you have a curiously low opinion of lawyers. Which I suppose makes sense for someone that is only a 3rd year associate. You will come to appreciate the value that good lawyers bring, as a thought partner and not just some monkey to ensure your docs are "drafted appropriately". Assuming you make it far enough in this industry to actually lead that type of work...

Start Discussion

Total Avg Compensation

April 2021 Private Equity

  • Principal (7) $694
  • Director/MD (15) $627
  • Vice President (63) $371
  • 3rd+ Year Associate (66) $267
  • 2nd Year Associate (127) $250
  • 1st Year Associate (266) $224
  • 3rd+ Year Analyst (24) $164
  • 2nd Year Analyst (60) $136
  • 1st Year Analyst (171) $117
  • Intern/Summer Associate (18) $71
  • Intern/Summer Analyst (191) $60