PE CFO Compensation
Currently in LMM PE and have been planning to pursue a CFO route following my 2 year program. Looking at our CFO compensation across our portfolio, the compensation is a bit underwhelming (it's a lot of money but it's still less than I expected), so I am wondering how it scales with MMPE and UMMPE funds. Compensation for a typical CFO in our portfolio is:
Base: $220-$230k
Target Cash Bonus: $60-$80k
All-in cash comp: $280k-$310k
Equity (this is a bit tricky): 1.0-1.5% options when fully vested
Option vesting is contingent on CoC hurdles, but assuming a 4.0x CoC on a $50mm equity check you'd be getting $1.5mm-$2.2mm at exit for a great outcome. 3.0x CoC would be $500k-$750k at exit for a very good outcome (this assumes only half of the options vest at 3.0x). Anything less than 3.0x CoC and your payday starts to look like your annual cash comp or less.
Plenty of nuances to this such as COL, years of experience, do they hit their budget every year, strike price for new hires added during hold period, etc.
Would love to see this info for larger PE funds.
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Head of FP&A in a PE Portco here (~$150M revenue, branded CPG).
The two CFOs that have come through our business have had salaries of $300k and $265k, each with a 50% cash bonus. I do not know what the current guy's equity situation is (the first guy left unvested), but I would imagine ~1-1.5% contingent on 3.0x MOIC (half time-based, half MOIC-based). I can tell you that the 50% bonus seems pretty standard for c-level portco execs. The cash bonus you are citing is consistent with second-line management (directors and VPs)
Our business is larger than yours, so the management team's expected payout at the full vest would be multiples higher than what you're citing, in dollar terms. I would have thought the mgmt team in a smaller company like the one you're describing would get a higher equity stake (I thought I had read somewhere that while the median Management Incentive Program is ~11% of the outstanding equity, that number approaches 15% or more for small deals).
Hopefully this helps.
Helpful, thanks. Our portfolio is split 50/50 at 10% pools and 15% pools. I also used $50mm check size as a round number, but our average check size is probably $30-$35mm. So we are a bit downmarket than what my example above suggested.
If CFOs at your portcos are only getting 1%, where’s the rest of the pool going? Is the CEO taking half?
Fund size?
I’m at a shop that writes checks in that range and we typically pay CFOs ~$400-$450k all-in with 1-1.5% of the equity depending on MIP size and management team size. COL usually isn’t that relevant because we’re paying for top talent
Sounds about right for LMM PE sized companies. Other question is whether you can go that route. There are a lot of skills you need as a CFO that doesn't overlap with banking/PE. The closest I've seen in VP of Finance or Head of FP&A.
Agreed - will be looking for a director level role post PE, then hopefully find a CFO gig in ~5 years. I have seen PE VPs move to directly to CFO roles (we actually just hired one at a portco) which makes me believe the skills ex IB/PE people lack can be picked up in a reasonable amount of time.
Your CFO comp is lower than I’ve ever seen at PE-backed portco. I think market in MM is more $250-300k base with 50% target bonus.
At what point can PE associates usually hit a CFO role in a PortCo? Is it usually Principals that can do so?
I’d be surprised if many investors can jump straight to CFO, but if it were to happen I wouldn’t expect it below principal (or maybe a VP that would have otherwise have had the years of experience to be promoted to principal). People (VP+) sometimes take over as interim C-suite while running a search for a more permanent hire, but usually post-associate stint you’re looking at more of a Manager title, maybe Director depending on company size, but typically you want more grey hair for a VP or CXO hire
For a fun outlier, check out when 3G installed a 29-year old Partner as CFO of Kraft-Heinz - 3 years later they had to restate all the financials during his tenure and brought back the prior exec because he was “more seasoned”
Ah, I see. What's comp usually like for these Manager level positions at PortCos at the MM and MF level? I understand its highly dependant on each individual company, but what's a reasonable range?
That feels pretty in line with what I've seen. It's rare in the MM/UMM that a hired gun C-Suite is going to make a ton of money, especially given that the CFO is usually not going to be as well compensated as a CEO. Assuming a 15% management pool with 8-10% carved out for management, 1-2% is the max you'd get. CEOs almost always get 5%, and then you need to think about COO, CTO, CMO, etc depending on what type of business it is. Plus quarter to half percents for all the VPs/Directors below them.
Honestly that comp feels pretty high to me, public company VPs of finance usually aren't cracking more than $500k or so in total cash comp. The fact that you could make ~$300k all in with an equity upside of $1-2M, assuming a 5 or so year hold, that annualizes to about $500/600k, which is pretty massive if you think about it. This is all assuming you're at a average size, few hundred million in revenue business and maybe have a total finance team of 10-20. If the lifestyle isn't too terrible, this is about as good as it gets.
The longer you spend in PE, the longer you realize how hard it is to find a profession where you can make $500k+ per year. Most associates at big funds in PE are paid as well if not better than a majority of mid-senior level corporate finance execs, probably why you don't see too many former PE folks want to be portco CFOs, if anything, they want to run the entire business.
This was one of the more eye-opening realizations for me… when friends at F500s would talk about the “big deal” regional VP at their meeting and you realize that guy makes like $300k - still a fantastic comp package by all means, but nothing out of the ordinary on this side of the table
Right but he likely pulls that in working 40 hours or less a week. These types of roles can be pretty cush vs the PE life. All depends on what you value.
Good summary but I think you undershoot the equity upside a bit at the C-level. For example, I just had a buddy clear close to $10M earlier this year when his company exited to a larger (but still solidly MM/UMM) PE group. Every situation is different but the right one can be quite lucrative, especially if you can get 2-3 recaps worth of MIP and roll.
10m for cfo
seems fair from what I've seen
Also worth nothing your equity will be taxed at the Lt rate upon exit I believe
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