Online Extra: Private-Equity Paychecks May Set Record

On average, partners at private-equity firms received $2 million in compensation in 2005, and this year's paydays should be bigger than ever

By Emily Thornton

Private equity has become a business that's all about breaking records. It's about raising record $15 billion funds and buying companies with higher price tags than ever, like $32 billion hospital operator HCA, which a trio of private-equity firms snatched up in July. Yet another record that has truly sent reverberations across Wall Street has been how much partners at private equity firms are getting paid.

In the next several months, partners will find out just how big their checks will be, and the word is that, like everything else private-equity firms are doing, the checks should be larger than ever. That's a real statement since, overall in 2005, partners at all private-equity firms pocketed $2 million on average in salary, bonuses, and their share of their fund's profits. At the larger private-equity firms with more than $1 billion in assets, they took home $2.5 million, according to a survey by Holt Private Equity Consultants.

Many partners may justifiably feel the urge to splurge. On average, they received 43% more than in 2004 and a lot more than private-equity partners earned five years ago. In 2000, partners at large private-equity firms were forced to get by on less than half as much, a mere $953,000. At all firms, partners made $897,000 on average.

NOT ENOUGH?

  Incredibly,as big as their pay bump was in 2005, the increase in partner compensation last year was not as large as it was in 2004. That year, pay for partners at large private-equity firms zoomed 99% to $1.8 million. Overall, pay jumped 46% to $1.4 million on average in 2004.

The slightly smaller increases may reflect the fact that many firms' returns are not as stellar as they have been in the last couple of years. "Although partners do make a lot of money in good years, and also do reasonably well in poor years, their pay does relate to performance," says R. Michael Holt, founder and managing director of Holt Private Equity Consultants.

That may not keep too many partners with millions to burn awake at night. But as Benjamin Franklin once said: "Who is rich? He that is content. Who is that? Nobody."

Thornton is a writer for BusinessWeek in New York

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