Family offices are now offering top staff equity and profit shares to attract talent as they grow in size and number, competing more directly with private equity firms and venture funds. According to a leading family office attorney, this trend is part of a broader strategy to make compensation packages more appealing.
In addition to salaries and bonuses, many family offices are introducing equity stakes and profit-sharing plans to provide more incentives and align employees’ interests with the family’s goals.
Patrick McCurry, a partner at McDermott Will & Emery LLP, notes that family offices must adapt to the increasingly competitive job market, not only among themselves but also against traditional private equity, hedge funds, and venture capital firms.
To align staff incentives with family interests, family offices are adopting three main compensation methods:
1. Profits Interest:
This gives employees a share of the profits from successful deals, taxed at the capital gains rate, which is lower than the ordinary income rate.
2. Co-investment:
Employees invest their own money alongside the family, often with financial support from the family, which encourages less risky investments.
3. Phantom Equity:
For complex family office structures, phantom equity offers a performance-tracking share of assets without actual ownership, similar to a deferred tax-free 401(k) plan.
McCurry emphasizes that family offices need to offer diverse equity options to stay competitive in attracting talent. As more family offices adopt these practices, it becomes a standard expectation for employees.
