Phantom stock.
Captive insurance companies.
Stock appreciation rights.
Rabbi Trusts.
Restricted or controlled partnership interests.
Arbitrage arrangements over a preset hurdle rate.
Split-dollar arrangements.
Tax treaty arbitrage opportunities.

Given the complexity of the issues involved, it is likely that multiple structures will be required to accomplish the myriad objectives of a contingent compensation arrangement.

The nature of the relationship and the effectiveness of the communication between the parties involved can impact the amount of time it takes to find agreement on the key issues. We've seen many efforts stall at this stage, while the executive director, the family members and the third-party professionals shepherding the process analyze, tweak, revise and reject various aspects of the model. It's important to remember that the purpose of the initiative is for each party to contribute-and receive-value from the final program. Once questions have been answered, open items have been resolved and a plan is in place, ensuring that all details are appropriately addressed requires patience and dedication from all the professionals involved. Many of our clients are surprised to find that the implementation process can be as lengthy and intricate as the development stage.

Extending The Reach
We have focused on the migration toward contingent compensation in single-family offices. However, a "pay for performance" approach is typical in the investment community and, therefore, necessary to lure top-quality investors into new roles. The arrangements in question are being adopted more frequently by a variety of financial services firms, including multifamily offices, boutique advisory practitioners and even denovo banks. Similarly, hedge fund and private equity firms are exploring ways to motivate and retain key personnel that do not have equity stakes in the management companies. A well designed compensation model can be a shrewd and powerful way to keep a portfolio manager or an analyst content and focused without having to change the ownership structure of the firm. The difference in the programs and their uses across the financial industry will be the extent to which the calculus for compensating talent is codified.

Solution For Success
It's no secret that compensation is a powerful motivator for most highly skilled financial professionals, as well as the barometer many use to measure their performance, their career progress and their self-worth-and this is certainly the case with executive directors in single-family offices. In short, the success of a family office often hinges on the executive director, and once the ideal individual is in place any changes or departures can be disruptive and costly.

A family office can benefit in numerous ways by establishing a link between compensation and the job performance of its executive directors. Goal alignment between employer and employee disperses conflicts and creates synergy while offering significant upside earning potential for the executive directors. This type of arrangement gives the executive director a "membership stake" in the family office, and enables them to share in both the risk and the reward of running the organization.