PE Pay For Performance

In an interesting article, Andrew Ross Sorkin and Eric Dash in the New York Times report on the lure of private equity to CEO-level candidates. The belief is that PE-led firms have a closer link between pay and performance than do public companies.

"Flush with hundreds of billions of dollars, private equity firms are beginning to offer compensation on a previously unimaginable scale to the chief executives who run the once-public companies that the firms have bought out. At the privately held firms, the executives still get salaries and bonuses, but a crucial difference lies in the ownership positions they can secure, which can turn into particularly bountiful riches when these businesses are sold or go public again."

Loyal readers of Abnormal Returns will remember we have touched on this theme previously with posts on CEO cash and control and the Five C’s of private equity buyouts. While we do not believe entirely that:

“There is no reason to be a public company anymore,” he [Henry Silverman] said.

“You don’t need access to the public market,” because, he said, of the enormous amount of money sloshing around private equity and hedge funds.

We do believe that so long as ample capital and credit remain available for buyouts we will continue to see large public companies go private and public CEOs join along. The implications for the public equity markets are an entirely different story.