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Inadequate Salary System, Main Reason for Brain Drain of Local VC/PE
Add Time:2011/5/5

The concept of Venture Capital and Private Equity Investment (referred to as "VC/PE") has been adopted by China only for over a decade. However, this market has entered into a stage of rapid development thanks to the steady growth of national economy and continuous improvement of the capital market. The trend is followed by problems such as the intensifying competition of human resources, the substantial increase in employee turnover rate and some practitioners taking advantage of their occupational conveniences to seek for own interests. While the industry insiders have called for the establishment and improvement of a sound external supervision mechanism, how to improve the internal governance mechanisms and salary systems of the investment institutions and enhance their competitiveness has also become a hot topic of all parties. Recently, Zero2IPO Research Center, a leading VC/PE research institution in Greater China released a report titled "Research on Management Mechanism and Salary System of Chinese VC/PE Institutions." During the completion of the report, we conducted research on all levels of personnel working in the institutions of different organizational forms and institution natures.

In the following sections, some researches on industry insiders' salaries are excerpted by Zero2IPO Research Center for analysis. For more information, please refer to the full report -Research on Management Mechanism and Salary System of Chinese VC/PE Institutions.

Among the interviewed industry insiders of local institutions, 76.0% are from the limited corporations while 24.0% are from the limited partnership institutions. In accordance with the overall base salary levels of employees at all levels, it is not difficult to conclude that the base salaries of middle-and senior-level managers show in incremental trends with the promotion of positions.

70.0% of the respondents from the local institutions indicated that their base salaries increased in the past year. In accordance with the analysis based on different positions, all analysts and primary investment managers involved in the research got increases in their salaries in the past year. In contrast, nearly half of employees at senior positions got an increase of 0.0% in their base salaries in the previous year.

According to the research results, among these respondents working in the local VC/PE institutions and getting increases in their base salaries, the salary increases gradually with the rise of positions. Taking Senior Investment Managers, Vice Presidents and the personnel at the level of Investment Directors/Partners for example, the proportion of these with a salary increase rate of more than 10.0 % is apparently higher than that of analysts and other positions.

In local VC/PE institutions, the personnel with an annual performance pay of less than RMB 200,000 account for up to 66.8%, and no respondents’ performance pay is more than RMB 500,000, which is far from the level of foreign institutions.

Among the interviewed industry insiders of local VC/PE institutions, 30.8% of the respondents believe that the unreasonable salary system is the main reason of employee turnover while the limited vocational development is the secondary one. The personnel leaving due to the insufficient platforms by the corporations and the non-recognition of the corporate cultures account for a relatively low proportion.

After suggestions and recommendations on remunerations are raised, most interviewed staffs from the local VC/PE institutions said that the companies would adopt a more positive attitude. The institutions welcoming and accepting the suggestions account for 7.5% while those improving to a certain extent but appearing more passive account for 35.0%. However, 22.5% of the respondents said that the VC/PE institutions didn’t make any improvement after receiving recommendations from their staffs.

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