For this column we asked Jack Lane, Managing Director of Finatal to share his advice on how private equity-backed companies can optimise their talent acquisition strategies to align with both immediate operational needs and long-term strategic goals.
First of all, we have to acknowledge that it’s a relatively rare skill set for an executive to be able to align with both immediate operational needs and long-term strategic goals, particularly in a PE-backed business. Often we see that even having worked in a PE-backed business is not sufficient evidence for having this skillset, forcing companies to really dig deep to find the right people who align with their value creation strategies. In a growing PE market, with more and more businesses looking to attract these rare, high calibre individuals, there is more competition than ever before to secure ‘the best’. Here are four things to consider when looking to optimise your talent acquisition strategy to attract them:
1. Define Expectations
High-calibre, PE-savvy executives seek roles where they can make a quantifiable impact. They want to contribute to a successful value creation strategy and be recognised for their contribution. Therefore, it’s crucial to clearly articulate how an executive role is expected to contribute to both short- and long-term objectives. PE-backed companies need to define how success will be measured, both in terms of immediate operational challenges and broader strategic goals. While PE-backed roles may come with a certain level of risk, executives may well avoid opportunities where success cannot be clearly defined or quantified.
Action: Define success for the role and communicate it early and often. This should be reflected in job descriptions, interviews, onboarding processes, and performance KPIs. Investors should support this by offering insights from their portfolio and case studies that show how similar roles have been measured for success. Alignment between the company and its investors is essential to ensure clarity.
2. Define Key Competencies
For role descriptions, make sure the focus is on defining the key skills and competencies required for each position. While recruitment in PE can sometimes rely on instinct or ‘gut feel’, reducing risk by clearly identifying essential competencies is crucial. Once the expectations for how the individual will deliver value are clear, it’s important to map out the skills they’ll need to succeed. This competency matrix should reflect the core capabilities required for the role. Casting too wide a net may lead to inefficiencies in the search process, while being too niche can result in a prolonged, difficult search that may be impossible to fill.
Action: Develop a detailed competency matrix. Clarify what skills are essential, which are ‘nice to haves,’ and what is unnecessary for driving value in the role. Use this matrix to map the addressable talent pool and focus your search accordingly. Engaging a search partner early in the process can be beneficial, as they can challenge the competency framework and help clarify the available candidate pool. This is especially valuable when the company’s expectations are misaligned with market realities.
3. Consider Both Immediate and Future Needs
A common pitfall is hiring solely to address in-the-moment challenges, without considering the future growth and needs of the business. As PE-backed firms navigate different stages of the investment cycle, it’s vital to have a team who can manage both short-term operational demands and long-term strategic goals.
Many businesses take a narrow, short-term approach to hiring, often based on immediate operational needs that may have even shifted by the time the executive starts. This can result in mismatched expectations and shorter executive tenures. On the other hand, over-prioritising long-term strategy may cause executives to overlook the immediate operational challenges they will face upon joining.
Action: Ensure the competency matrix reflects both short-term operational demands and long-term strategic goals. If it’s difficult to balance these needs, consider alternative approaches, such as hiring short-term functional specialists or augmenting the executive with additional talent to focus on either the operational or strategic aspects. Avoid seeking a ‘jack of all trades’ who may not meet core competencies, or targeting a small, highly competitive (and expensive!) pool of candidates.
4. Offer Compelling Incentivisation
High-calibre executives naturally expect to be well-compensated, especially in today’s competitive PE market. While money may not be the sole motivator for top talent, it undeniably plays a big part in attracting the right candidate. There are three key components to consider:
Basic Salary: Base salaries have increased significantly in recent years for senior roles. Companies with the financial resources to offer larger upfront salaries often have an advantage when competing for top candidates.
Performance Bonus: The bonus structure should be individualised and closely tied to the success metrics for the role, rewarding performance throughout the deal cycle rather than solely at exit events.
Equity Upside: High-quality executives expect to share in the upside of a liquidity event. Offering meaningful equity participation will go a long way in securing top-tier candidates.
Action: Businesses need to align compensation with market expectations and the value of the role. Compensation should be realistic and adjusted according to the addressable talent pool. Ideally, it should be determined after assessing the available candidates to ensure the right balance between budget and talent acquisition needs.
Conclusion
By addressing these four key areas, organisations can improve their likelihood of attracting and retaining high-calibre executives. In a competitive market, aligning talent acquisition strategies with the realities of the PE landscape is essential for long-term success.
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