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Help Family Office Clients Create an Employee Retention Plan

Keeping the right talent is critical to preserving the stability of the family’s wealth.

Key employees managing family assets are as diversified as the assets themselves. They’ve often been hand-picked for their unique talents and the ability to serve—and preserve the family’s wealth.

But every day brings a risk that they may not be here tomorrow. It’s critical for your clients to attract and retain the right talent in their family offices to preserve the stability of the family’s wealth long term.

Trusted Partners

The best family office staff are more than employees, they’re trusted business partners. Selected for their unique technical skills, strong interpersonal abilities, dedication, discretion and personality, these trusted partners help ensure the family’s short-term and long-term objectives are met, often across multiple generations.

Every family office manages wealth created through the specialized ideas and labor of the family that created it. And, it’s the family office executives and managers who are responsible for furthering that wealth. Unlike the typically narrow business that created the wealth, the family office business managers operate the varied assets of the family.

Family offices employ a mix of internal and external experts ranging from investments and family governance to travel and fine art. Family office leaders are in charge of this talented group.

It took a significant investment of time and effort to identify and recruit this diverse, talented staff. What does your client’s family aim to lose if they lose a trusted partner in their family office?

Successful Retention Plan

We’ve seen firsthand what it takes to operate a successful family office and have seen what can otherwise disrupt a well-capitalized plan. Retention isn’t  as simple as having competitive compensation and incentive plans. The benefits of working for a private family office can be exciting. The perks include interesting investment opportunities, proximity to the family and access to assets. But, these perks don’t necessarily tie key partners to the family.

A successful retention plan is tailored to the mindsets and motivations of the employee. These plans also must be carefully crafted to mirror both the needs and values of the family. It must truly be a win-win for both.

Three Examples

Shared success. A family’s chief investment officer has accumulated a sizable investment account that she manages on her own, mirroring the family’s investment assets when she can. In addition to her normal salary, bonus and benefits, she has access to the family’s unique investments, and the family allows the CIO to participate in the investment along with the family as a limited partner.

Using this shared opportunity as a way to incentivize the CIO, the family is able to demonstrate its commitment to her as a partner in its success and emphasize its family value of rewarding shared success.

Meaningful protection. A family’s real estate manager has a wife and two young children, one of whom has special needs. Due to the extensive family holdings, the manager travels around the country tending to various transactions making it hard for him to be with his family. In addition to his normal salary and bonus, the family provides additional paid time off options. Importantly, the family has also lent the manager funds for a permanent life insurance policy that allows the manager to provide for his family and accumulate an additional degree of savings. The family will get paid back by part of the death benefit or the policy’s cash value.

Through tailoring the benefits to meet the unique needs of the manager, the family emphasizes its family values of creativity, a meaningful legacy and protecting their own.

Home ownership. A timber family in the U.S. Pacific Northwest incentivized its CEO through the purchase of a home for the CEO. The family tied the home ownership to a vesting schedule as a form of “golden handcuffs.” At the end of the vesting plan, the note was forgiven. The CEO’s pay was increased to cover any tax deficiencies and to pay the costs of insurance of a life insurance policy held by the family on the CEO’s life. The insurance was used to replace the value of the home to the next generation of family members. Much like the long-standing timber, the family had deep roots in the region and wanted to keep its key partners rooted there as well. The purchase of a home certainly accomplished that.

When it comes to designing the ideal retention plan for a key employee, your clients should consider all of their options. They should seek the guidance of your trusted advisors and peers to see what’s worked for others. Remember, if your client values an employee, his competitor may value that individual even more. This makes it vital to include the targeted employees in the planning. Understanding their motivations, needs, fears and wants will help your client understand their propensity to leave, their state of mind and what benefits will truly make an impact in their lives.

Designing the Plan

Keep these tips in mind when designing an employee retention plan

  • Ensure the plan survives by getting buy-in from the spouse and next generation;
  • Remember, if an employee is thinking about leaving, it may be too late;
  • Targeted retention plans should be reserved for key employees who are both at a high risk of leaving and are difficult to replace;
  • In addition to senior executives and high-performing employees, consider employees whose retention is critical due to institutional knowledge, direct relationships and technical know-how;
  • Retention can mean more than just money. Consider a mix of financial and nonfinancial incentives that meet the employee goals;
  • When retention requires a financial incentive, structure the plan in a targeted way to reward results; and
  • Put the plan in writing. Don’t leave any ambiguity to chance.
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