In more detail

The unique nature of family offices

While every business must navigate the intricacies of employment law, family offices are distinct in their composition and operation. They are typically established to manage the wealth and affairs of a single family, often encompassing a range of functions from investment management to concierge services. This blend creates a dynamic wherein personal relationships and professional responsibilities coexist — sometimes harmoniously, other times contentiously — driven currently by the following two specific elements:

• Personalized operations: Family offices often prioritize discretion, loyalty and trust, sometimes leading to informal hiring practices or compensation structures based on personal relationships rather than market benchmarks.
• Professional expectations: As family offices grow and their activities become more complex, there is an increasing expectation for professionalism, transparency and compliance, both internally and from external stakeholders such as regulators and tax authorities.

Employment and compensation law challenges

Employment law applies irrespective of the nature of the business. Whether an employee works for a multinational corporation or a tightly knit family office, the same core legal requirements generally apply. This reality presents several challenges for family offices, including the following:

• Mandatory requirements: Employment laws governing hiring, termination, compensation and workplace rights are typically nonnegotiable. Family offices cannot opt out of these obligations by claiming informality or tradition.
• Jurisdictional issues: Family offices that operate across borders or employ individuals in multiple countries may face complex legal and tax obligations in each relevant jurisdiction, including varying standards for remuneration, benefits and employee protections.
• Tax and regulatory oversight: Compensation packages, especially those involving equity, bonuses or multijurisdictional arrangements, can attract the scrutiny of tax authorities and labor regulators, necessitating careful structuring and documentation.

Attraction and retention challenges specific to family offices

The current search for talent is framed by several key circumstances. There is an obvious need for talent upgrade in family offices due to the complexity of their businesses and the increasing challenges of investments. The talent pool is limited and family offices face financial institutions and the private equity industry as competitors attracting top candidates, which are very often cross-border institutions. The generational dynamics within family offices are changing and some young generations may be more willing to build their own legacy outside of the family legacy, which drives the existing need for more professional staff.

At the same time, the compliance and the regulatory overload in the financial services industry is leading some investment managers to consider joining a family office in the search for a less regulated and less bureaucratic environment.

When attracting talent, family offices should leverage the unique purpose and strong values that underpin their organizations. Highlighting the cultural values, integrity and tradition that trusted and loyal employers can offer is key. In the candidate search, a family office should use trust as a competitive advantage and should take advantage of promoting its unique identity, rather than using traits associated with traditional corporate practices.

Retaining top talent is essential for any organization but family offices face unique obstacles, such as the following:

• Limited career progression: With flatter hierarchies and fewer structural opportunities for advancement, family office employees may feel their career prospects are limited compared to those in larger organizations.
• Work-life balance: The close-knit nature of family offices can blur boundaries, sometimes leading to increased expectations outside normal working hours, which can affect employee satisfaction and retention.
• Compensation: Family offices may be perceived as less sophisticated and less competitive employers in relation to compensation schemes.
• Confidentiality and discretion: Family offices often handle highly sensitive matters, placing a premium on trust and confidentiality. While this can foster loyalty, it can also lead to insularity and hinder the introduction of new perspectives or talent.

Compensation strategies: balancing fairness and tradition

Compensation in family offices must strike a balance between market competitiveness and the personalized culture of the organization. The timely involvement of tax and employee compensation and benefits experts can often help design the competitive compensation package and make it compliant to a level that the candidates expect.

The balance may be found through addressing the key considerations below:

• Benchmarking and transparency: Even in informal settings, family offices benefit from benchmarking salaries and benefits against industry standards, but they should ensure alignment with the family values and objectives. Transparent compensation policies can help manage expectations and reduce the risk of disputes or perceptions of favoritism and help minimize the impact of the potential gap between family members.
• Incentive structures: Bonuses, profit sharing, coinvestment rights and other incentive plans can play a significant role in attracting and retaining high-quality personnel. However, these structures must be carefully designed to comply with tax and regulatory requirements, especially in cross-border contexts.
• Nonfinancial rewards: Given the personal nature of many family offices, nonfinancial rewards — such as flexible working arrangements, professional development opportunities or enhanced leave entitlements — and tailor-made forms of informal compensation can be highly effective in promoting loyalty and satisfaction.
• Documentation and compliance: All remuneration arrangements should be properly documented and structured to comply with applicable laws, especially tax regulations and the terms of local statutory minimum employment entitlements. This includes written contracts, clear bonus criteria and robust confidentiality and nondisclosure agreements.

Balancing informality and legal compliance

The core challenge for family offices lies in balancing the benefits of informality and personalized relationships with the imperative for legal and professional compliance. While tradition and flexibility are valuable, they cannot override statutory requirements or best practices. Family offices should consider the following approaches:

• Regular legal reviews: Periodic audits by legal and HR professionals can help ensure ongoing compliance with evolving employment laws and regulations.
• Formalizing policies: Codifying employment, compensation and disciplinary policies — even if applied flexibly — can provide clarity and reduce risk.
• Training and career development: Investing in HR training for both family members and professional managers can help bridge gaps between informality and professionalism.
• External advice: Engaging external advisers for complex or cross-border issues can mitigate risks associated with tax, labor law and employment disputes.

Conclusion

Family offices occupy a unique and evolving space in the modern business landscape. As they continue to professionalize and expand, HR issues related to retention and remuneration will only grow in importance. By acknowledging the inevitable requirements of employment law and embracing best practices — without losing sight of their distinctive culture — family offices can build stable, effective and forward-looking teams. Ultimately, the goal is to create an environment where trust and professionalism go hand in hand, ensuring the long-term success and harmony of both the family and its employees.