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Instances of no bonuses should worry only the few

The canceled and reduced bonuses revealed in this year’s compensation report relate only to managers overly exposed to troubled sectors as the pandemic hit.

Of more than 900 data points in this year’s compensation report by PERE and real assets executive search firm Sousou Partners, there were only five “confirmed or strongly suspected” instances of no bonuses being paid.

Across the 21 seniority profiles, covering different ranking positions at private equity real estate firms and real estate investment management firms, just three profiles showed instances of no bonuses being paid.

Do private real estate executives need to worry about the future of their bonuses? That depends. If you are a senior private equity real estate executive with meaningful responsibility for assets acquired pre-pandemic and in sectors less fancied, or worse, maligned by institutional investors currently, then yes. A bonus would be hard to justify.

Indeed, the three profiles where zeros occurred were each at private equity real estate businesses. But it is important to note they were for heads of platforms or regions and for acquisitions-focused roles. For the more junior levels at private equity real estate firms, whose level of responsibility for any troubled assets is less, bonuses were notably reduced but were still paid.

For the real estate investment managers – organizations typically focused on lower risk and return assets and for longer holds – this takeaway from the compensation report should provoke little more than rubbernecking from you.

Of greater relief for many in the private real estate industry was how there has been minimal movement in base pay. According to one executive contributing to our coverage on the compensation findings, managers have been relieved from an expectation to give pay raises during the pandemic, but they dared not reduce it. And few employees expected an increase in base earnings in a year of such economic turmoil. Employers have, by and large, kept this staple part of the remuneration package stable and that has not disappointed.

In any event, hope abounds for better days ahead. With vaccination efforts expected to lead to the reopening of societies around the world and, with that, large parts of the commercial property universe, the base pay part of the equation for private real estate managers could well resume an upward trajectory – apart for, perhaps, those still lumbered with troubled assets whose challenges have only become exacerbated by the crisis.

But as one C-suite executive at a real estate investment manager contributing to the report told us, most responsible managers budget their compensation against multi-year horizons anyway and have factored in a downturn of some description. Bonuses can ebb and flow for the senior executives. But the biggest prize for them, carried interest, is paid at longer intervals and calculated against different performance targets anyway. Those who see this part of the take-home adversely affected have far bigger concerns than their bonuses.

For them, reducing or removing bonuses is a relatively small measure in their bigger pictures, one they have been willing to take.

PEI Media is pleased to open nominations for our inaugural Women of Influence in Private Markets list, which celebrates trailblazing women in alternative assets, including private real estate. To submit a nomination, click here.