August 17, 2023 – As the private equity space continues to grow, consistent demand for lawyers and compliance officers at both the firm and portfolio company level has boosted the outlook of these roles. “This is generating a noticeable impact on compensation and responsibilities for these professionals,” said John Gilmore, founding partner of BarkerGilmore, in a new report from the search firm.
Once a private equity firm’s assets under management (AUM) exceeds $1 billion, general counsel compensation and carry eligibility increase significantly, says BarkerGilmore’s 2023 Private Equity and Portfolio Company In-House Counsel Compensation Report. At funds less than $1 billion in AUM, general counsel receive annual median compensation of $360,000, with 20 percent of the GCs being eligible for carry, a percentage of the fund’s profits added onto their management fees, and an expected carry value of $1 million. For funds between $1 billion and $9 billion AUM, however, median compensation grows significantly, to $625,000, with 81 percent of those GCs eligible for carry, and an expected carry value of $3 million. And when funds top $10 billion AUM, GCs enjoy annual median compensation of $1.19 million; ninety percent of those GCs are eligible for carry, and the carry value is expected to be $9 million.
Among all general counsel, the majority have additional responsibilities beyond legal, says the report. At PE firms, 85 percent reported serving as chief compliance officer and 44 percent reported acting as corporate secretary. General counsel at portfolio companies are likely to serve as corporate secretary (72 percent) and chief compliance officer (53 percent) as well.
The report, says BarkerGilmore, was designed to provide private equity and portfolio company in-house counsel the ability to compare pay with peers and aid legal leaders and human resources departments in attracting and retaining top talent by explaining competitive compensation packages. BarkerGilmore conducted an online survey in March of this year to assess private equity and portfolio company counsel compensation trends for the year 2022.The online survey was completed by a random sample of over 400 private equity in-house counsel at various levels of seniority within different-sized private equity organizations and portfolio companies across the U.S.
“Within private equity and portfolio companies, compensation data is crucial for attracting and retaining top talent, establishing effective organizational structures, and ensuring competitive compensation packages drive performance and value creation,” said Bob Barker, managing partner, in an interview with Hunt Scanlon Media. “The availability of accurate and comprehensive compensation data enables private equity firms and their portfolio companies to make informed decisions regarding executive compensation, equity incentives, and overall compensation strategies.”
“For our inaugural annual report on compensation for private equity firms and portfolio companies, the extensive participation and high demand for our findings were both surprising and affirming of the industry’s need for this data,” he added.
Robert Barker is co-founder, managing partner, and chair of the industrial practice at BarkerGilmore. He brings over three decades of executive search and international business experience to his clients. Mr. Barker has successfully managed general counsel and chief compliance officer engagements for mid-sized to Fortune 500 companies, including consumer, energy, financial, healthcare & life sciences, industrial, non-profit, technology, and private equity industries. Clients rely on Mr. Barker for advice and counseling both during and after the engagement.
Undeniably, general counsel play a pivotal role in private equity firms. “Their value arises from legal expertise, risk management, strategic insight, deal structuring, and execution,” said Mr. Barker. “They also offer guidance on the legal aspects of managing portfolio companies, from governance to employment issues to intellectual property concerns.”
Chief Compliance Officers
Among the other key findings of the study, BarkerGilmore says that chief compliance officers at funds exceeding $10 billion in AUM earned an annual median compensation of $538,000 with 40 percent qualifying for carry and an expected carry value of $3 million. Carry eligibility for chief compliance officers ranged from 25 percent at sub-$1 billion AUM funds to 40 percent at $10 billion-plus AUM funds. Among those surveyed, chief compliance officers are most inclined to pursue new job opportunities based on compensation, with 40 percent indicating a high or very high likelihood.
Managing counsel at funds surpassing $10 billion in AUM, meanwhile, received an annual median compensation is $535,000, and an expected carry value of $1.8 million, according to BarkerGilmore. While 30 percent of managing counsel at funds with less than $1 billion in AUM receive carry, this doubles to 60 percent for those at funds with greater than $1 billion in AUM.
Senior counsel receiving carry varied slightly between 33 percent to 36 percent depending on the size of the PE firm’s AUM.
For portfolio companies, the general counsel’s median salary at portfolio companies scaled slightly with revenue, ranging from $284,000 at firms with under $500,000 in revenue to $357,000 at firms exceeding $5 billion in revenue, says BarkerGilmore. The GC’s total compensation was most impacted by the cash bonus and LTI, with those at portfolio companies with $5 billion in revenue earning a median of $1.4 million.
Managing counsel at portfolio companies were most likely to receive long-term incentives in stock options and RSUs, said the report. Senior counsel at portfolio companies were unlikely to have LTI.
The demand for in-house counsel roles is in large part an evolving perspective, says Mr. Barker. “Firms increasingly understand the dual role in-house lawyers play as legal experts and strategic partners for the executive team, balancing risk and value creation,” he said. “Drawing from their extensive institutional knowledge and key involvements in areas like M&A, general counsel have a heightened ability to identify strategic opportunities that drive value.” Many, in fact, have made the lateral move to roles like chief administrative officers, though it is less common to see them fully step into the CEO role, says Mr. Barker.
Compliance Compensation Report
In another recent study, BarkerGilmore’s 2023 Compliance Compensation Report, the search firm found that compliance compensation grew in 2022. “The average annual base salary increase for all positions across industries was 10 percent,” said the report. “Total compensation increased by eight percent. The chief compliance officer’s total compensation rose 10 percent, with a significant increase in LTI (14 percent) and a 12 percent increase in base compensation. Total compensation for compliance officers/counsel increased by six percent, with the only change occurring in base salary.”
“The demand for compliance professionals, especially chief compliance officers, is as strong as it has ever been,” says Mr. Gilmore. “The need for business-minded leaders, an environment of increasing regulations, and the heightened awareness of the risks associated with lack of compliance have created a competitive landscape for compliance professionals.”
Inside the High Demand for General Counsel Leaders
The legal and compliance market is booming. The number of in-house lawyers and law firm partners with aspirations of becoming a general counsel is at an all-time high. Unfortunately, landing the position is a challenge. Every search has specific criteria established by the executive leadership team and board which must be met. Some of the criteria could include specific industry experience or business knowledge, a background in public company securities and governance, as well as expertise in regulatory, compliance, litigation, M&A, employment/labor law, intellectual property, government relations, leadership, career track record, law firm training, law school ranking, and the list goes on, according to Robert Barker, co-founder and managing partner of BarkerGilmore, which specializes in building corporate legal and compliance teams.
“Keep in mind cultural fit and soft skills which cannot be found on the resume are equally important,” he said. “And diversity can play a major factor in the CEO and board’s final decision. Most are using the general counsel position as a means of adding diversity to the executive leadership team,” he added. The demand for excellence is understandable as the general counsel plays such a critical role. One wrong answer or move during the interview process can lead to immediate disqualification. “Even after an offer is made, any red flag demonstrating a lack of judgment or ethics discovered during the background investigation will lead to a retraction,” said Mr. Barker.
BarkerGilmore’s compliance compensation survey, conducted online in March, was designed to assess compliance compensation trends for the year 2022. The online survey was administered to a random sample of compliance professionals at various levels of seniority within different-sized public and private organizations across the U.S. Questions were answered by over 500 individuals from an assortment of industries and practice areas.
On average, chief compliance officers received 100 percent of their target bonuses in 2022, said the compliance compensation report. Chief compliance officers with a law degree had a significantly higher salary than their non-law degree counterparts. Total compensation for chief compliance officers with a law degree was 69 percent higher than those without one. The difference in compensation was observed at all levels — base, bonus, and LTI.
Top Law Firm Experience
“Chief compliance officers with experience working at Am 100 law firms earn significantly higher total compensation than those without law firm experience and those that worked at small or boutique law firms,” said BarkerGilmore. “Total compensation packages for female chief compliance officers were one percent lower than their male counterparts. Thirty-seven percent of chief compliance officers expected to make a compensation-related job move within the next year, down three percent from last year.”
Compliance officers, meanwhile, received 100 percent of their target bonuses in 2022, said the study. The overall gap in total compensation between compliance officers with law degrees and without law degrees was 15 percent; however, the gap widened significantly based on the law school ranking of the compliance officer. Compliance officers who graduated from a Top 50 law school made 56 percent more in total compensation than compliance officers without a law degree. Similarly, compliance officers with law firm experience increased total compensation by 25 percent compared to those without law firm experience. The gap grew to 62 percent if that law firm experience was with an Am Top 50 firm. Female compliance officers made two percent more in total compensation than their male counterparts. Forty-three percent of compliance officers expected to make a compensation-motivated job move in the next year.
The BarkerGilmore compliance compensation report also found that the number of direct reports that a chief compliance officer or compliance officer has correlated with their total compensation. Chief compliance officers with 20 or more reports made 133 percent more than those without reports ($665,000 compared to $285,000). Compliance officers with 20 or more direct reports made 97 percent more in total compensation than those without reports ($463,000 compared to $235,000).
To read the full BarkerGilmore report click here!
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media