Family Office Talent War: Incentives & Pay Rise
Family Offices Boost Executive pay with New Incentive Plans to lure Top Talent
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Family offices are intensifying their competition for skilled professionals by introducing more robust incentive compensation plans, significantly increasing pay for top executives.A recent report highlights a growing trend where a majority of family offices now offer long-term incentives tied to performance and investment returns, with nearly two-thirds of investment-focused family offices implementing such plans.
Formalizing Compensation for High-Net-Worth Investors
While performance bonuses have been a common practice, these awards are becoming more structured, obvious, and generous. “Over time, we are seeing an increased formalization of compensation plans,” stated Valerie Wong Fountain, managing director and head of family office resources and partner management at Morgan Stanley. “If you go back a number of years, you may have seen more handshake agreements. Now it’s more structured and measured against performance.”
Skyrocketing Salaries for Key Roles
Investment-focused family offices, which function akin to in-house financial firms with specialized, highly compensated teams, are seeing significant pay increases. According to the report, the median total compensation for CEOs in these offices is $825,000 annually. For larger investment-focused family offices managing over $1 billion in assets, the median pay exceeds $1.2 million. The surge in compensation at the highest levels has driven the average pay for CEOs at these mega-offices to over $3 million per year.
Chief Investment Officers (CIOs) are also experiencing notable financial gains. The median compensation for CIOs at investment-focused family offices now stands at $900,000, with the average reaching $1.8 million.
Innovative Incentive Structures
The nature of incentive plans is also evolving. Co-investments, allowing executives to invest alongside the family in deals, are gaining popularity.Wealthy families frequently enough secure exclusive access to high-growth companies and sought-after investment opportunities, making co-investment a highly attractive perk. while some executives may receive loans from the family to facilitate these co-investments, the report indicates that the majority (85%) of these investments are funded by the executives themselves.
“It’s a powerful way to eat your own cooking,” commented Wong Fountain, emphasizing the alignment of interests.
Other prevalent incentive structures include carried interest, where executives receive a share of investment gains exceeding a predetermined benchmark, alongside phantom equity, profit sharing, and deferred incentive plans.
“In an ever-competitive market for talent, families increasingly are focused on attracting highly skilled and more specialized professionals to execute their vision, mission, and strategy,” said Trish Botoff, managing principal of Botoff Consulting.