In an increasingly competitive market for sophisticated and experienced professional and investment talent, family businesses are seeking and applying new approaches to attract and retain top level executives. Drivers that affect Family Office compensation include size, family philosophy, position scope and complexity, individual performance, and geography.
A perennial challenge regarding compensation has been the lack of good benchmarking available as reference. In 2015 the first Family Office Executive Compensation Survey was published by Fidelity Family Office Services and Botoff Consulting. A subsequent survey was released in 2017, co-sponsored by Mack International, McNally Capital and Botoff Consulting. This year, the latest survey developed by Botoff Consulting uncovered valuable trends and insights into types of compensation Family Offices are using to attract and retain C-suite leaders.
#1 Family offices have increased salaries and bonuses at a rate higher than the broader US market due to competition for talent.
Heightened competition for key roles and competencies has spurred family offices to increase compensation for incumbents and candidates to remain market competitive. The survey showed 33 percent of family offices reported higher performance bonuses and 46 percent of family offices reported higher salary increases than prior year compensation actions. Notably, these increases were not due to inflationary concerns but instead due to the strong talent market and increased competition for executive, accounting, and investment team talent.
#2 Family offices are increasing the use of formalized metrics and objectives in their annual incentive plans.
Recruiting challenges remain top of mind in over 50% of the family offices surveyed. The strong market for family office professionals is driving family offices to proactively define their compensation strategy to improve recruiting outcomes and to recognize and reward the value of employee retention.
In response to the increasing professionalism in family offices, 80% of family offices report the use of annual bonuses, and nearly two-thirds have incorporated formalized annual incentive plans for executives. Performance metrics and clearly defined and aligned objectives serve to both retain and motivate key talent toward accomplishing the overall goals of the family office.
#3 Family offices have adopted a variety of LTI plans, designed to support goals and performance while promoting employee retention.
Over 50% of Family Office respondents report implementing LTI plans. There is a trend toward tailoring their plan designs to meet the long-term goals of the family with attractive long-term compensation arrangements for key employees. The most common types of incentive compensation arrangements provided were deferred incentive compensation, carried interest and co-investment opportunities. Fewer family offices are offering profit sharing plans, phantom equity, phantom carried interest or operating company equity.
Family offices are incorporating well-defined performance measures to structure long-term incentives with scaled performance thresholds, as well as with a variety of vesting and award payout options. Increasingly, family offices are implementing a variety of forms of equity for tax purposes, like a profits interest, which allows a family office to offer specific tax-advantaged options that would not be available to a corporation issuing equity.
The types of compensation packages vary widely, depending upon the strategy and goals of a particular Family Office. Ultimately, designing compensation plans that are aligned with family objectives and testing incentive plans to insure they drive behaviors that will lead to achieving family goals is paramount. Developing a process before, during and after an executive search is embarked upon plays a critical role in the overall success of the Family Office.
About Mack International LLC
Mack International is the premier boutique retained executive search and strategic management/human capital consulting firm serving national and international clients in the family office, family business enterprise and the wealth management industries on a national and international basis. Founded in 2002, the firm has achieved an exceptional track record of success as evidenced by its unmatched industry expertise, in-depth market knowledge and unparalleled track record of success. Founder and President, Linda C. Mack has established proprietary methodologies such as the Mack 360© and is credited for having coined the term “expert generalist” in the industry.
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