Battle for talent at family offices boosts incentive plans and pay

Introduction to Family Offices

Family offices are ramping up their battle for talent, creating new incentive plans for top executives that are boosting pay, according to a new report. A majority of family offices are now using long-term incentive compensation plans, which increase total pay based on performance and investment returns, according to a report from Morgan Stanley Private Wealth Management and Botoff Consulting. Nearly two-thirds of investment-focused family offices are using long-term incentive compensation, according to the report.

Formalization of Compensation Plans

While family offices have often given special performance bonuses to executives, the awards are becoming far more structured, clear and generous. "Over time, we are seeing an increased formalization of compensation plans," said 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."

Compensation for CEOs and CIOs

At investment-focused family offices — which are more like in-house financial firms, with more specialized, highly paid teams — the median total compensation for CEOs is $825,000 a year, according to the report. Larger investment-focused family offices, with over $1 billion in assets, are paying a median of over $1.2 million. Soaring pay at the very top of investment-focused firms has pushed average pay for $1 billion-plus CEOs to over $3 million a year, according to the report. Chief investment officers, or CIOs, are also benefiting. Median pay for investment-focused CIOs is now $900,000, with the average at $1.8 million.

Incentive Plans

The incentive plans are also changing. Co-investments are becoming especially popular, allowing executives to invest alongside the family in deals. Since wealthy families often get special access to fast-growing companies and coveted deals, the opportunity to invest alongside the family is an added bonus. While some executives can take a loan from the family to make their co-investments, the report said most co-investments (85%) were funded by the participants. "It’s a powerful way to eat your own cooking," said Wong Fountain. The other common incentive plans include carried interest, where the executive gets a share of the investment gains beyond a benchmark, as well as phantom equity, profit sharing and deferred incentive plans.

Attracting Talent

"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.

Conclusion

Family offices are becoming more competitive in their pursuit of top talent, offering structured and generous compensation plans to attract and retain highly skilled professionals. The use of long-term incentive compensation plans, co-investments, and other incentive plans is becoming increasingly common, reflecting the evolving needs of family offices and the executives who lead them.

FAQs

Q: What is the median total compensation for CEOs at investment-focused family offices?
A: The median total compensation for CEOs is $825,000 a year.
Q: What is the average pay for $1 billion-plus CEOs at investment-focused family offices?
A: The average pay for $1 billion-plus CEOs is over $3 million a year.
Q: What is the median pay for investment-focused CIOs?
A: The median pay for investment-focused CIOs is $900,000.
Q: What is the purpose of co-investments in family offices?
A: Co-investments allow executives to invest alongside the family in deals, providing an added bonus and aligning their interests with those of the family.
Q: What percentage of co-investments are funded by the participants?
A: 85% of co-investments are funded by the participants.