Why do so many MBAs aspire to enter private equity? Aside from the fact that the hours are generally better than investment banking, the organizations are leaner and the compensation is generally higher, it seems that the compensation is more stable as well. According to the Private Equity Analyst-Holt Compensation Study, released September 1, 2008, private equity compensation rose last year and is expected to remain strong due to the fact that private equity firms have a consistent revenue stream due management fees (not all revenue is event driven).

A few highlights of the study follow:

“Salaries for North American private equity professionals rose 5.3% to $200,000 from $190,000 year-over-year. Including bonuses, compensation rose by 25% to $375,000 from $300,000. Once carried interest is included, total compensation packages rose by 27.3% to $401,000 from $315,000. That’s an even faster rate of growth than that seen at the time of our last survey.”

“Managing general partners, senior partners and partners at buyout firms posted median compensation including salary, bonus and carried interest distributions of $1.3 million, up 18%. At venture firms, this figure was $956,500, up 37%. The more favorable environment on the buyout side can also be seen for junior investment professionals, who posted median compensation of $272,000 on the buyout side, up 40%, versus $200,000 among VCs, up 22%.”

For more information, on the study, click on the following link: Private Equity Analyst-Holt Compensation Study.

Last week, Bloomberg caught up with a few Wall Street Refugees, who are now trying their hands at new jobs in new industries (“Wall Street’s Jobless Try Cupcakes, Cheap Haircuts, Maybe Omaha”). Despite the elimination of more than 76,000 jobs, many bankers, due to years of hefty paydays, are landing on their feet – buying or starting businesses. This entertaining Bloomberg article highlights the new and unexpected futures of a few and the unfortunate present day of one.

This morning the Financial Times reported that UBS expects to reduce its investment banking bonus pool by one-third, as it continues to cope with mortgage-related losses. Although UBS has already shed 12% of its banking workforce, the bloodletting is still not over, with 500 more layoffs expected. So, even though the pool of bankers is shrinking, the bonus pool is clearly not keeping the same pace, meaning that (surprise!) UBS bankers can expect less.

For MBA candidates this year, there is probably little about which to worry. Who knows what a 2011 graduation date will have in store? For those graduating this year, this is indeed an ominous sign.

Is $84 million too much for one year of work? We won’t weigh in on Oracle CEO, Larry Ellison’s recent pay package, but it seems that there is momentum building for Congress to engage in the debate. The Christian Science Monitor offers dizzying statistics (the average CEO is paid $10 million+, 344 times the average worker; thirty years ago, CEOs were paid 40x the average worker) and joins a chorus of Americans calling for change.  Is it possible that by the time today’s MBA aspirant will be a CEO that Congress will have a hand in his/her compensation decisions? The good news is that this is a long way off and that in an election year, few politicians will want to upset power-players and major donors.

Top of mind for many candidates these days is the post-MBA job situation – what will the economy be like in three years time? While it is difficult to predict what will be, the trend for those who are graduating now has been to accept non-negotiable offers, consider other professional areas or… move overseas? This morning, Canada’s Financial Post (“Downsized Bankers Flocking to Hong Kong”) reported that so many “recent graduates as well as seasoned financiers”  have moved to Hong Kong (recognizing that large pools of investments are available in Asia and far less available in North America) that housing is becoming more expensive and dinner reservations are much more difficult to secure. If you are interested in banking, you might begin to explore other locales other than Wall Street as an avenue toward launching your career.  Or, you might just be patient and wait to see what the future holds…

This morning, the New York Times (“Rich and Rejected”) reported on a a familiar story and a surprising trend.  

The familiar story is that banking bonuses are expected to fall by 30-40% this year, according to compensation consultants. Further, these consultants expect that bonuses will not increase again until 2010 . The surprising trend is that some mortgage providers are no longer willing to extend credit based on bankers’ expected bonuses and are demanding higher down payments, meaning that bankers’ dollars simply won’t go as far as they have in the past.

What does this mean for aspiring MBAS? Well, for those applying now, it might not mean that much. If the market were to recover by 2010,  today’s applicants will be shielded from the worst of the downturn and will discover rising bonuses when they graduate. However, students graduating in 2009, can expect a tougher hiring environment and lower bonuses, meaning that their MBA ROIs will be affected in the short term.

This morning, the New York Times cited a report by independent research firm Portales Partners and speculated that “bloodletting will continue at a fast and furious pace.” What is at the heart of this speculation? Portales studied the banks headcount and revenue growth since 2004 and determined that if revenues were to fall back to 2004 levels, approximately 20 percent of current employees would need to be let go. How many have been released thus far? Portales pegs that number at 1 percent. So, the remaining 19 percent may be hanging in the balance as these firms adjust. What does this all mean for MBAs right now? Well, the banks should still be on campus, but they may eliminate some non-core schools in order to streamline recruiting costs, as they did in the years following the tech bust. Further, as we have noted before, MBA students will definitely lack leverage in negotiating salaries for the foreseeable future.

Bloomberg recently published an article (”Hedge Funds Hire From Wall Street as Jobs Disappear, Pay Falls“) about forty-five investment bankers who have left for hedge funds and private equity firms, as traditional i-banking businesses have softened. While the article may raise the anxiety levels of those seeking to enter banking, one line in particular should give those interested in this field some solace: “The retrenchment may leave Wall Street firms short of talent if their investment-banking and trading businesses begin to recover.” Indeed, as was the case during the last slump on Wall Street (2001-2004), the large firms cut quite deeply and were clamoring for talent as the market returned. Could the MBA candidate applying today and graduating in 2011 be in great shape after all?

We decided to launch the compensation report, so that aspiring MBAs could follow both short and long term trends in this area, helping candidates understand one of the important variables in choosing a future career path. One trend that seems to be causing increasing consternation in the media, but shows no sign of abetting in Corporate America, is CEO pay.  The Associated Press reports that in 2007, despite the economic downturn, pay among Fortune 500 CEOs rose by $280,000, reaching an average of $8.4 million dollars per year – an increase of 3.5% over 2006. It is noteworthy that three of the top-10 pay packages belonged to CEOs from the financial industry, a contrast to the massive layoffs and declining pay expectations of those in the field.  

Yesterday morning, Smart Cube, a firm which supplies the financial services industry with research and analytics, announced the results of a survey of recruiters in the financial field. Smart Cube asked recruiters in London and New York for their opinions on hiring trends and found that they were virtually unanimous in expecting compensation to drop by as much as 20%. These recruiters also reported that senior level candidates have scaled back their expectations. 

It is clearly a “buyer’s” market right now for MBA talent. So, MBA students can expect that, for the foreseeable future, after 83,000 layoffs in financial services, the investment banks will be dictating employment terms.