IT'S A SMALL WORLD FOR CEOS AT S&P 500 COMPANIES.

IT'S A SMALL WORLD FOR CEOS AT S&P 500 COMPANIES

The study named The Market for CEOs: Evidence from Private Equity by Paul A. Gompers, Steven N Kaplan, and Vladimir Mukharlyamov investigated how private equity firms selected and compensated CEOs for portfolio companies.

The key findings of the research are as follows:

1. Private equity-funded companies hire external CEOs more frequently than public companies, indicating that private equity firms prioritize prior experience and success in their selection process. Over 75 percent of new CEOs hired to run private equity-funded companies were external hires

2 Firm-specific knowledge appears less important for private equity-backed companies, as they are more likely to hire complete outsiders as CEOs. This contrasts with public companies, which prioritize internal promotions and individuals with prior experience in the firm. Only 28 percent of new CEOs at S&P 500 companies were external hires

3 Private equity firms place a higher value on CEOs with experience leading successful companies, especially those with private equity buyout experience. As a result, these firms offer competitive compensation packages to attract and retain top talent.

4 Private equity firms are more proactive in replacing underperforming CEOs, demonstrating a focus on company performance and a willingness to make changes if necessary.

5 These results were strikingly different from studies of public companies, mainly, Cziraki and Jenter (2022), who found that: 72% of new CEOs in S&P 500 companies were internal promotions. The most recent experience of 67% of the outside CEOs was at a public company, with almost 50% of external hires having previous experience at an S&P 500 firm

These findings have several implications for both private equity firms and the broader market for CEOs:

1 The active market for CEOs suggests a pool of experienced talent available for private equity-backed companies and public firms. This highlights the importance of effective talent management and strategic recruitment processes for firms seeking to hire top-tier executives.

2 The study underscores the different priorities of private equity firms and public companies when selecting CEOs. While private equity-backed firms value industry experience and prior success, public companies place greater emphasis on firm-specific knowledge and internal promotions. Understanding these differences can help companies tailor their recruitment strategies and better identify suitable candidates.

3. The willingness of private equity firms to replace underperforming CEOs may have implications for corporate governance and company performance. By closely monitoring CEO performance and taking decisive action, private equity firms can potentially drive better results for their portfolio companies

4 The competitive compensation packages offered by private equity firms can serve as a benchmark for public companies looking to attract and retain top executive talent. By aligning CEO incentives with company performance, private equity-backed and public firms can foster a performance-driven culture and enhance long-term success

The research sheds light on the differences between private equity-funded companies and public companies in terms of CEO selection and compensation, and it also shows that it is a small world for those willing to become CEOs of S&P 500 companies. The internal promotions happened on average after more than 10 years at the organization.

About us:

Ana Paula Montanha is the Co-founder and Managing Partner of Hayman-Woodward Human Capital Services, located in Washington, DC.

The company provides executive search, recruitment, and staffing services to organizations of various sizes and requirements and also offers plans to assist experienced professionals in establishing an international career and boosting the US economy.

In early 2022, Ana Paula Montanha launched Human Capital Career Trends, a magazine that inspires high-skilled professionals to discuss employment opportunities in industries considered national importance. The magazine has reached over 17 million unique readers, making it a trustworthy resource for executives, HR communities, and job seekers.

She is a multi-awarded executive recognized by the Michigan Alumni Club for contributing to the 4.0 industry revolution.

As a native Portuguese speaker, she is fluent in English and Spanish and understands German and Italian.

What makes her unique is the way she approaches work with clients Ana Paula sees them as people first, members of our communities, valued clients who deserve the best in commitment, top performance, confidence, and loyalty as trusted partners.