Private Equity Value Creation through Talent Management 

The salary increase budget should be aligned with overall company financial performance, market competitiveness, strategic priorities, and the investment case. Start by conducting salary benchmarking and identifying pay gaps to assess the level of investment needed. Review inflation rates and industry salary increase forecasts to understand market movements. It's especially important as many firms expand into new markets. Considering these factors, collaborate with Finance, talent partners, and leadership to determine a budget. It needs to balance affordability and competitiveness. Start this process as early as possible, so budget estimates and the proposed investment spend can be socialised with investors and/or the Board or Remuneration Committee for approval, as applicable. We recommend doing the pay analysis at least 4-6 months before budget setting. 

Ahead of the annual review, if not already in place, organisations should establish pay principles. These should provide clear criteria for determining salary increases and pay progression. Consider the “three Ps” – Position, Person, Performance:

• Position: What is the market rate for the position? Use salary surveys to understand the competitive landscape. Consider the availability of talent in the market. High demand and low supply may justify higher increases to retain critical talent. Additionally, consider the prevalence of hybrid roles in PE-backed companies. These require consideration of market rates for more than one type of role profile.
• Person: Assess the individual’s experience, technical expertise, proficiency, and skills compared to role requirements. Has the individual acquired new skills since their last review?.
• Performance: Review the employee’s performance against their goals and key performance indicators (KPIs). For high performers, evaluate whether this has been sustained over time. Consider both the what and the how. Has the employee demonstrated positive behaviours aligned with the organisation’s values?
• Ensure that salary decisions maintain fairness relative to peers with similar roles and experience. With pay transparency increasingly scrutinised and regulate, decisions must be defensible and supported by clear, explainable rationale. 

Prioritise high performers, critical roles, and individuals below market. Remember that base salary is only one element of the overall reward package. When possible, utilise non-monetary recognition choices. These can include development opportunities, flexible work arrangements, or additional benefits. Communicate openly about the constraints, whilst reinforcing a culture of shared responsibility for organisational performance. Highlight the company’s commitment to future review cycles.

For executive-level roles, published compensation surveys are the best market comparator source. Best practice is to select surveys that meet all or most of the following criteria:

• Published annually to capture changes in the market for talent
• Covers the majority of the relevant PortCo roles
• Reports a breadth of data to meet PortCo needs (e.g. specific geographies, industries, revenue sizes, etc.)
• Contains detailed job descriptions
• Provides summary statistics (e.g. quartile data)

Published compensation surveys are also typically used for wider workforce roles. Survey data can cover all industry for a general market rate view.Alternatively, sector-specific cuts (e.g. technology, retail, manufacturing) may be available to provide a more detailed lens.

Use salary surveys to benchmark salaries and pay structures. Adjust your pay review recommendations to ensure competitiveness, especially for high-demand skills. This is essential for effective talent management in private equity-owned companies.

Implementing an annual variable pay plan is important for several reasons, especially in a PE-backed company. Longer hold periods demand greater focus on value creation and execution to protect exit value. An annual variable pay plan helps drive company-wide focus on delivering annual business goals. It also reinforces value creation, particularly for employees not covered by other long-term incentive plans. Talent competition remains fierce  in private equity firms. Offering performance-based rewards through such a plan supports attraction, motivation, and retention of top talent, without increasing fixed costs. Additionally, an annual variable pay plan can be used as a tool to foster a strong culture. It embeds core values, promotes entrepreneurial agility, and maintains operational focus on value creation during market volatility. This helps build a resilient and engaged workforce aligned with private equity objectives.

The year-end review process for annual incentives typically involves several key steps to ensure a fair, transparent and performance-driven outcome.

To determine if year-end funding is available for the annual incentive plan, a review is essential. You should review your company's financial position, budget, and strategic priorities. Engage with your Finance team to understand the overall financial results. This includes revenue, profitability, and cash flow. You should assess whether financial targets have been met or exceeded, as these often influence incentive funding.

• If the AIP pool is tied to a specific funding formula, confirm with your Finance team whether the funding condition has been met. This will help determine the funding available for distribution.
• If the AIP budget was approved at the beginning of the year, work with your Finance team to ensure the approved budget remains affordable. This should be based on the company’s financial performance, and whether the budget requires adjustment to reflect above target performance.
• If the AIP pool is determined discretionarily each year, compare year-over-year changes in key financial health metrics and award eligibility. Determine overall affordability and potential changes to funding levels.

In all cases, review any internal policies or governance guidelines that specify maximum payout limits or funding caps. Be sure to review any contractual or regulatory restrictions that could impact funding. Adjust the incentive pool if necessary, based on actual results versus projections. Confirm incentive funding with Senior Leadership and get the necessary approvals from the Board and/or Remuneration Committee, as applicable.

To kick off the annual pay and performance review process, plan ahead by defining stakeholder roles and responsibilities. Consider the RACI model – Responsible, Accountable, Consulted, and Informed. Create a timeline with key milestones and validate it with all stakeholders.

Ensure your pay principles are documented and up to date. You and your team should have a clear understanding of:

• Any changes to minimum wage or pay transparency regulations applicable to your markets.
• Incentive plan rules, including elements such as eligibility, target awards, payout formulas, thresholds, and any plan updates during the year.

Employee data should be current, including roles, tenure, salary details, and any employment changes. This includes promotions, role adjustments or changes to working hours. Gather relevant salary and total cash benchmarking data, conduct benchmarking, and analyse pay gaps. We recommend conducting this analysis 4-6 months before kicking off year-end.

Collate performance data which should include individual and team metrics aligned with company goals, progress on KPIs, and qualitative manager comments. Prior performance reviews or calibration notes provide helpful context to ensure a fair and considered annual pay review process. Budget and funding information as well as information on the company’s overall financial performance are also crucial. This covers revenue, profit, and results within specific departments or business units.

Fairness in annual pay distribution starts with clear performance criteria and payout guardrails. For annual incentives, transparent metrics and evaluation standards should be communicated upfront, with caps or guardrails in place to prevent excessive variability.

Any differentiation for performance should be clearly documented and communicated. Calibration sessions involving managers and leaders help review performance ratings collectively. This reduces biases and promotes consistency across teams.

Handling edge cases, such as recent promotions or pay adjustments, requires objective review and clear guidelines to ensure fairness.

Maintaining detailed documentation of assessments, calibration discussions, and decision rationales fosters transparency. Regular oversight before final approval helps ensure alignment with policies. Soliciting feedback from managers and employees post-process can identify areas for improvement.

Our 2025 TAAP and Comptryx pricing brochure is available here.