The Rise of Private Equity in Tech Leadership Compensation

on 07 | 12 | 2023

In our recent survey on The Future of Tech Leadership, we uncovered valuable insights regarding compensation trends. Despite a market correction in mid-2022, compensation levels have remained stable, indicating the industry’s resilience and potential for continued growth. However, the survey also revealed a notable trend of increasing compensation, particularly among private equity-backed businesses and those operating in the mid-market revenue bands. This surge in competitive compensation from growth equity and middle market private equity firms seems to be filling the void left by a cooling venture funding environment and dislocations among public company shares. Importantly, equity compensation has remained stable as a percentage of available pools, countering concerns about valuations. In this blog post, we will look into the implications of these findings and explore the role of private equity in shaping the future of tech leadership.


Stability Amidst Market Correction:

Following the mid-2022 market correction, the tech industry has witnessed stability in compensation levels. This indicates a resilient sector that has weathered the storm and is now poised for continued growth. Amidst this stability, a net 15% of respondents reported an increase in guaranteed compensation. This suggests that organizations are recognizing the need to retain and attract top tech talent in a competitive landscape.


The Rise of Private Equity:

The survey revealed that private equity-backed businesses are at the forefront of the group paying higher compensation. Private equity firms, especially those operating in the growth equity and middle market segments, appear to be capitalizing on the cooling venture funding environment and dislocations among public company shares. As a result, they are offering increasingly competitive compensation packages to lure talented individuals.


Filling the Void:

With the venture funding environment experiencing a cooling effect, it is not surprising to see private equity firms stepping in to fill the void, making their portfolio companies attractive options for tech professionals seeking stability and growth opportunities. These firms are leveraging their financial resources and industry expertise to attract top talent by offering competitive compensation packages.


Equity Compensation and Valuations:

One interesting aspect highlighted by the survey is that equity compensation remains stable as a percentage of available pools, despite concerns about valuations. This suggests that tech companies are maintaining a strategic approach to equity compensation, carefully managing the allocation of equity to balance employee incentives with the overall valuation of the company. While noise in the system around valuations may be present, organizations are still recognizing the value of equity as a means to incentivize and retain talent.


Implications for the Future:

The findings of this survey indicate a shifting landscape in tech leadership compensation. Private equity firms are becoming significant players in the market, offering higher compensation to attract and retain top talent. This trend not only highlights the adaptability of the tech industry but also signals a potential rebalancing of power between different funding sources.


Tech professionals should be aware of the changing dynamics in compensation trends, especially those considering opportunities in private equity-backed businesses or the growth equity and middle market segments. However, it is important to evaluate compensation packages holistically, considering factors such as career growth, company culture, and long-term prospects, in addition to financial rewards.