The threat of a “brain drain” of executives from City boardrooms of quoted companies to the private equity sector may have been exaggerated, pay and recruitment specialists warn.
Recent high-profile appointments by venture capital firms of executives from listed companies have convinced some that publicly owned businesses are losing the battle to retain key talent. A lack of public scrutiny and large potential rewards in private equity are cited as the main draws for City chiefs.
But, in a polarised debate, other commentators are sceptical. Income Data Services, which is finalising its respected annual survey on FTSE directors’ pay for release in September, says it has not yet seen evidence that listed companies have been redrawing remuneration packages to prevent key staff going to private equity.
Mark Reid, principal at Towers Perrin, the remuneration consultancy, also says: “It [private equity] is the sort of bogeyman in the backroom that people are nervous about. Having seen a few similar phases with other bogeymen, it is hard to know how real it is.”
One City headhunter, who spoke on condition of anonymity, says: “The brain drain is largely imaginary. It is self-serving for CFOs and CEOs to say they will go off to private equity and everyone goes along with it. Private equity firms have a name for CEOs and CFOs. They call them FDH – fat, dumb and happy.”
Marcus Peaker, chief executive of Halliwell Consulting, an executive remuneration consultancy, adds: “Clearly people’s work environment is not just about making lots of money. A lot of the executives we talk to wouldn’t like the more direct hands on management taken by private equity in comparison to the fairly benign approach taken by the institutions.”
But senior executives with experience of both unlisted and listed sectors predict that in cases where individuals are mainly money driven, the private equity sector has a winning edge. As the sector has acquired bigger companies, its attraction for top talent has grown.
Roberto Quarta, the non-executive chairman and former chief executive of BBA, the engineering group, who joined Clayton, Dubilier & Rice, the private equity group, says: “If you deliver, there is no question about how much money you are going to make and no negotiation. It is very difficult for a public company to compete with that.”
Robin Lincoln, partner at HgCapital, the private equity firm, says: “Some people like working for listed companies for the prestige. But we are meeting people who say, ‘why should I spend half my week dealing with shareholders, analysts and PR advisers, when I could get rid of a lot of that and someone is going to pay potentially a lot of money for my work’?”
Many commentators argue that executives working in private equity, either as deal makers or operators of
private equity owned companies, can face tough operational targets
An acerbic headhunter sums it up: “Yes, you might make more money, but you also might lose the will to live.”