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| Industry View |
Compensation Is the Key
Hannah Shaw Grove, Usha Bhate & Russ Alan Prince
03/01/2007
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Given the gap in how employee directors and participant
directors are paid for their roles in the family office, it is not surprising
that the two groups have disparate perspectives on the future importance of
certain compensation elements. Participant directors consider the following
three items the most important for future compensation schemes: the link between
investment success and compensation; the opportunity to have an equity stake in
family office deals; and deferred compensation programs.
And while more than 80 percent of employee directors would like
to see a link between investment performance and compensation, they also want
success fees that relate to noninvestment and tax-related goals. Employee
directors are less concerned with deferred compensation plans, but were five
times more interested in receiving more perks as part of their compensation. The
employee directors’ generalist tendencies and broader role in the family office
organization translates to their more inclusive perspective on compensation.
Conversely, participant directors often fill more of a specialist role,
especially as it relates to investment responsibilities and results (Exhibit
11).It is no secret that compensation is a powerful motivator for
most professionals, as well as the barometer many use to measure performance,
career progress and self-worth—and this is certainly the case with executive
directors. A director is in a critical and demanding position in any
single-family office; these professionals need a combination of business,
interpersonal and technical skills to be truly effective. In short, the success
of a family office often hinges on the executive director; changes or departures
can be disruptive and costly. Goal alignment between employer and employee
disperses conflicts and creates synergy while offering significant upside
earning potential for the directors. This arrangement gives directors a stake in
the family office and enables them to share in both the risk and the reward of
running the organization.
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