Family offices turn to more structured pay to keep executives for the long term

Family offices are significantly enhancing executive compensation through the formalization and increased adoption of long-term incentive plans, including co-investments and carried interest, according to a new report. This strategic shift, aimed at winning the war for talent, is driving higher pay, with median CEO compensation at investment-focused family offices reaching $825,000, and exceeding $1.2 million for those managing over $1 billion in assets, where average CEO pay can surpass $3 million. Chief Investment Officers are similarly benefiting, with median pay at $900,000, underscoring a structured approach to aligning executive performance with investment returns in the private wealth sector.

Analysis

Family offices are systematically escalating their efforts to attract executive talent by formalizing compensation structures, a notable shift from historical informal agreements. According to a report from Morgan Stanley Private Wealth Management and Botoff Consulting, nearly two-thirds of investment-focused family offices now utilize long-term incentive plans to directly link pay with performance. This professionalization is driving significant pay increases, with median total compensation for CEOs at these firms reaching $825,000, and surpassing a median of $1.2 million at larger offices with over $1 billion in assets, where average pay now exceeds $3 million. Chief Investment Officers are seeing similar gains, with a median compensation of $900,000. Incentive structures are also evolving, with co-investment opportunities becoming particularly popular as they grant executives access to exclusive deals alongside the family. Other common structured incentives include carried interest, phantom equity, and profit-sharing plans, indicating that family offices are increasingly adopting compensation models akin to institutional private equity and hedge funds to compete for top-tier talent.

Key Decisions for Investors

• Investors in public and private asset management firms should monitor for upward pressure on compensation expenses, as sophisticated family offices are now competing more aggressively for the same pool of executive talent.
• The rise of co-investment incentives signals that family offices are becoming more active and direct participants in private market deals, which may increase competition for assets but also present new partnership opportunities for institutional funds.
• When evaluating family offices as potential co-investors or counterparties, it is now crucial to assess their formalized compensation and governance structures as a key indicator of their operational sophistication and alignment of interests.