Compensation Trends: Reaching the Half-Million Dollar Milestone

The talent market for private equity backed software and SaaS firms has been a seller’s market for going on two years. 

As in any seller’s market, the law of supply and demand means prices rise, in this case the compensation for executives hired to lead portfolio companies.

In this blog post I’ll break down the core findings on C-Suite Compensation Trends from our Private Equity Talent Benchmark Reports.

Surge in Deals, Surge in Demand

The massive influx of new capital and the major spike in deals in 2021 drove an extraordinary level of position turnover in every major C-suite role. The market for talent became extremely tight in 2021 and the first half of 2022, a tightness that continues today.

Executives with proven private equity track records – the sellers in this market – found themselves courted by multiple potential new employers at any given time.

This resulted in price inflation driven by competition to secure the best talent. We compiled data on the annual On Target Earnings (OTE) across the C-suite in private equity backed middle market software firms for 565 executives placed over the past 5 years.

The average for C-suite cash compensation reached approximately $500,000 in 2022 for the first time in our tracking. Across the board our research and industry data shows a general upward trend in compensation for all positions.

CEOs Pulling Away

Another trend is the increasing gap between CEO compensation and that of the rest of the C-suite. For example, in 2018, the average CEO OTE was 21% higher than the average CFO OTE. By 2022, the gap between the CEOs and CFOs had widened to 27%. We attribute this trend to several factors which are backed up by anecdotal evidence from our experience in the market.

First, CEOs are under the microscope in today’s environment and many boards are taking swift action to find and recruit those with strong private equity track records. Experienced private equity CEOs can charge a premium for their services in the sector because of the critical nature of the CEO role.

Especially if you have other members of the C-suite with private equity experience, a CEO with sector experience will increase the odds of executing on value creation plans and working toward the investment thesis.

We also see a greater willingness to consider alternative backgrounds in other roles when the market is tight. A CMO with strong SaaS marketing experience in a public company, for example, might be considered for a private equity portfolio company because those marketing leadership skills likely will translate well.

In a similar vein, first-time CEOs are increasingly considered to fill CEO roles for the first time when a business does not want to pay the premium that a tenured CEO can command. However, there are important exceptions to the trend of CEOs pulling ahead of the pack, especially in the area of sales and marketing leadership.

Spotlight on Sales

Our numbers show that average cash compensation for Go-To-Market leaders – CROs, CMOs and others in market- and customer-facing roles – actually topped that of CEOs in 2021. As 2022 drew to a close, average OTE for Go-to-Market leaders remained high, though it fell below the average OTE for CEOs.

 The surge in demand for qualified sales and marketing executives place as deal-flow hit its peak in 2021. Our executive search volume numbers show the number of searches for sales and market executives more than doubled in 2021 when compared to the average of the previous four years. The high rate of searches continued into 2022 as newly minted portfolio companies sought experienced sales and marketing leadership to execute on their growth plans.

 This pattern lines up with the common sequence of executive turnover we see in the market. Very often a private equity firm taking over a new portfolio company will closely examine the sales, marketing programs, and leadership of the company to determine if they are suited to bring the company to the next level. Since so many of today’s investment theses are based on sales growth, these roles are likely among the first to be turned over for new talent.

Comp Trends Going Forward

New deals are often the primary driver of executive turnover, and as deal activity peaks, we expect demand for talent to peak as well.

However, another effect of the current economic conditions has been the sharp decline of IPO activity and other exit opportunities for portfolio companies. That in turn means potential lengthening of hold periods and the opportunity for leadership changes mid-stream as investors get access to a broader set of experienced executives.

While they may not have as many companies courting them, executives with great private equity track records will continue to command a premium price for their services.

Looking for the right C-suite hire for a private equity firm? Get in touch to learn how Bespoke Partners can help you find the right C-suite candidate in today’s competitive market.

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Author:
Eric Walczykowski
Chief Executive Officer

Eric is passionate about building high-performing teams that value doing their best, working together, overcoming adversity and learning.

As a proven growth executive, Eric has served as CEO, President, Board Member, Investor and Advisor for technology companies that achieved over $4.5B in successful exits.

Eric brings to Bespoke Partners significant professional services experience from Deloitte and Andersen, as well as the high-growth client executive perspective for private equity-backed technology companies.

Eric earned an MBA from the Kellogg School of Management at Northwestern University and a BS in Business from Fresno State University.

Outside of work, Eric enjoys spending time with family, coaching baseball, travel, attending live events and sipping good wine.