How US private equity compensates management through the investment lifecycle

September 2012
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How US private equity compensates management through the investment lifecycle

At a glance

Compensation is at the heart of the private equity investment process and is the key to effective retention of management and the alignment of interests essential to drive a successful exit.

In the private equity ownership model, compensation is the glue that binds the interests of portfolio company senior management to the financial objectives of the private equity owners. Compensation is at the heart of the private equity investment process and is the key to effective retention of management and the alignment of interests essential to drive a successful exit. Compensation issues arise throughout the investment process and these issues require active management so that potential concerns are addressed directly and early in the process. The size of equity awards made to top management in US private equity deals is usually a significant incentive to drive performance through the exit. However, inconsistencies in approach, perceptions of unfairness, limited flexibility or a simple lack of communication can all have serious consequences in terms of management focus and retention.

This article was first published in Private Equity Compensation and Incentives by PEI. For more information about this publication, please see http://www.peimedia.com/.