The private equity guru Guy Hands has signalled an overhaul of pay at his company Terra Firma, to tie up more of his top employees’ cash in future buyouts.
Mr Hands, who has promised to double the amount of money the firm puts into new funds, says senior staff will be forced to swap multimillion-pound guarantees for lower salaries and slower burning payouts. The practice is common among chief executives and management.
“While we are willing to support people with both capital and resources, they can’t be people who are happy being cogs in the machine,” he said. “One of the challenges… is that in the short term they will earn less. However, long term if they are successful they could be both fulfilled and wealthy.”
Mr Hands said he turned down “multimillion-pound packages” in investment banking for an £85,000 salary when he founded Terra Firma in 2002 after spinning it out of the Japanese bank Nomura. He previously worked at Goldman Sachs. Terra Firma has been seeking to position itself as an alternative to the behemoths of the private equity industry. Mr Hands has indicated plans to cut the number of investors in new funds. His third fund, which was worth €5.4bn (£3.8bn), had just 150 investors when it was raised in 2007. He will also stop charging fees on uninvested capital, a shift from traditional practices in the industry.
Terra Firma will commit 10 per cent into any new venture compared to 5 per cent previously. Just a quarter of private equity firms put 10 per cent or more of their own cash into deals, according to Schulte Roth & Zabel.
