Family Offices Enhance Compensation to Attract Talent

Family offices are increasingly adopting competitive compensation strategies, including lucrative equity shares and profit-sharing plans, to attract and retain top talent. As these private investment entities grow in size and number, they find themselves in direct competition with private equity firms and venture capital funds. According to attorney McCurry, this shift is driven by a "war for talent," prompting family offices to rethink their compensation structures to align staff incentives with family interests. In a recent UBS Family Office Quarterly article, McCurry outlined three prevalent methods family offices are using to compensate employees through equity and deal profit plans. One common approach is the profits interest, which allows employees to earn a percentage of profits from successful deals. For instance, if a family office purchases a company for $10 million and sells it for $15 million, an employee might receive a share of the $5 million profit, contingent on achieving a specific profit threshold. Additionally, family offices may offer leveraged co-investments, where employees can invest their own funds while borrowing from the family office to increase their stake in a deal. However, this arrangement carries risks, as employees could lose their investment and face repayment obligations if the deal does not yield profits. For more complex family offices, phantom equity is an alternative, providing notional shares that track asset performance without actual ownership, though it may be less appealing due to tax implications. As competition intensifies, McCurry emphasizes the necessity for family offices to adopt diverse equity offerings. He warns that failing to do so may leave them at a disadvantage, as employees increasingly expect such incentives in the current market landscape.