G.P. Doughty Hanson Pros Depart Over Pay Disputes –

The rising cost of retaining private equity talent is causing personnel headaches for U.K. buyout giant Doughty Hanson & Co. Since late last year, a number of investment professionals have either quit the London office or been fired over compensation issues, according to sources familiar with the situation.

In addition, the three principals in charge of Doughty Hanson’s recently established New York office are contemplating breaking away from the firm, a source said.

The turnover in London stemmed from conflicts over pay between founders Nigel Doughty and Richard Hanson and the firm’s lower-ranking investment professionals. In November, three Doughty Hanson executives in the London office, Huw Phillips, Marc Strobel and Nick Watkins, were fired after seeking a meeting with Doughty to discuss their compensation packages. A source said Doughty called the executives’ efforts to renegotiate their pay an “act of sedition.”

The three professionals, all of whom were associates and had been at Doughty Hanson for less than 18 months, were unhappy with their bonuses. A source at Doughty Hanson said the firm has no system of guaranteed bonuses, but every employee receives equity in the firm.

Phillips now works as a principal at the London office of Texas Pacific Group.

Since the firings, investment professionals Robert Savage and Christian Fritsch resigned from the London office after being passed over for promotions.

Kevin Comolli, who oversaw technology investing for Doughty Hanson, resigned prior to the firm’s launching of its new technology fund, citing personal reasons (BUYOUTS Feb. 21, p. 40).

Discontent with the firm’s management apparently has spread to the New York office, which Doughty Hanson opened in early 1999 (BUYOUTS Dec. 21, 1998, p. 1). Kevin Luzak, hired away from Salomon Smith Barney to head up the U.S. investment effort, as well as fellow principals Jacqueline Reses and Harry Green, all are contemplating leaving the firm to pursue their own ventures, either as a group or separately, according to a source familiar with the situation.

However, a source close to the New York office said reports that the three were planning on leaving are not true.

Pay Inflation

Several industry observers said that the arrival of U.S. private equity houses in Europe has had led many investment professionals at European firms to view themselves as undercompensated, owing in part to what one executive called “one or two big trophy packages” offered by U.S. firms. A partner now working at a U.S. private equity firm’s London office said the U.S. firm offered him a compensation package “several multiple points” above a competing British firm’s offer. The dichotomy in pay has led to several defections, the most high-profile of which occurred last year, when Kohlberg Kravis Roberts & Co. hired Johannes Huth away from Investcorp International.

In recent years, the salaries commanded by junior executives at private equity firms in the U.S. has seen marked increases, causing many founding partners to rethink the compensation policies they traditionally have offered their investment professionals.

Doughty Hanson Expands

At the time the New York office was established, a spokesperson for Doughty Hanson said the firm intended to build itself into a global private equity powerhouse. Doughty Hanson has additional offices in Frankfurt, Milan, Stockholm and Warsaw. A source at the firm said Doughty Hanson’s staff of professionals grew from roughly 50 to 70 last year. The firm has plans to add roughly 30 more professionals this year to help manage its $2.5 billion main buyout fund and its new real estate and technology funds, which have targets of $700 million and $500 million, respectively.

Despite the personnel issues, Doughty Hanson’s investment pace has remained steady – in December, the firm made its first investment in Italy, acquiring industrial lubricant maker Fiat Lubricant Group for approximately $400 million. Since coming to America, the firm has made two acquisitions – the $520 million buyout of Knowles Electronics Inc., and the $150 million acquisition of Cendant Corp. orphan North American Outdoor Group.