PE companies resort to salary freeze as investments tank
Press Trust of India / New Delhi Dec 07, 2009, 15:49 IST
As many as six out of every 10 private equity companies have either frozen salaries of employees or are mulling to do so in near future as investments take a hit amid lower returns, says a study.
With the declining returns from private equity investments, about 38 per cent of PE firms have already implemented a salary freeze and a further 22 per cent of the firms are considering a freeze, according to Preqin survey.
"The large proportion of PE firms implementing base salary freezes or cutting base salaries is reflective of the performance of private equity funds over the last year," said Sam Meakin, the managing editor of the survey.
SMC Capitals Equity Head Jagannadham Thunuguntla said: "The enthusiasm that was there among the PE firms two years back is subsiding. They are gradually resorting to low premium model of operation to cut down costs."
According to the 2010 Preqin Private Equity Compensation and Employment Review, "14 per cent of the PE firms have reduced the number of staffers and a further 12 per cent are considering this course of action."
With the freezing of the salary, the firms are also reining in the bonuses paid to their employees, with nearly half of the firms reported a decrease in bonus payouts.
"Salaries in PE firms are always handsome has they operate with fewer number of staff. To cut down on employee costs they are either freezing recruitment or resorting to base salary cuts," Thunuguntla noted.
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