Compensation Structures in M&A: A Strategic Lever for Value Creation and Deal Success

In the high-stakes world of mergers and acquisitions, compensation structures are far more than a transactional detail-they are a strategic lever for aligning incentives, mitigating risk, and driving long-term value creation. As dealmakers increasingly recognize the behavioral and relational dynamics at play in M&A, frameworks like Eric Leeper's "Three Families of M&A" underscore the need to harmonize interests across three critical groups: principals (first family), staff (second family), and clients (third family). By structuring compensation to address the unique motivations and expectations of each group, organizations can transform M&A from a disruptive event into a catalyst for sustainable growth.

Aligning Principals: Earnouts and Long-Term Value Capture

For business owners and principals, M&A often represents a culmination of years of effort and a transition to a new financial and personal chapter. Eric Leeper's framework highlights how compensation structures must account for the "first family"-not just the principals themselves but their broader financial and familial implications. Earnouts, a tool increasingly used in sectors like life sciences and private equity-backed deals, exemplify this alignment. By tying a portion of the purchase price to future performance metrics (e.g., EBITDA, revenue, or regulatory milestones), earnouts bridge valuation gaps while ensuring sellers remain invested in the post-merger success of their business.

This mechanism is particularly effective in mitigating risk for both parties. For buyers, earnouts limit overpayment by deferring compensation until key objectives are met. For sellers, they provide a safety net against short-term underperformance, fostering trust in the buyer's ability to execute. As noted in a Harvard Law analysis, earnouts often include protective covenants to prevent buyers from undermining the seller's ability to achieve earnout targets, ensuring a balanced approach.

Engaging the Second Family: Staff Retention and Cultural Integration

The "second family"-employees and staff-plays a pivotal role in maintaining operational continuity and client relationships during and after a deal. Yet, their expectations and tenure often go overlooked in traditional M&A planning. A 2025 report by Pave Consulting emphasizes that compensation alignment for staff is not merely about salaries but about reinforcing cultural integration and retention.

Steward Partners, a leading wealth management firm, offers a compelling case study. The firm's ownership model, which includes profit-sharing and employee equity stakes, aligns staff incentives with long-term value creation. This structure has been reinforced by strategic capital infusions, such as a $475 million investment from Ares Credit funds in 2025, enabling Steward to scale while preserving its partner-led ethos. By embedding employees as stakeholders, Steward reduces attrition risk and fosters a culture of accountability. For example, its Legacy Channel-a framework for succession planning allows advisory teams to pursue M&A without sacrificing brand identity, ensuring staff remain engaged and motivated.

Compensation strategies for staff also extend to tailored incentives like retention bonuses and career development programs. These measures are critical for retaining top talent in revenue-driving roles, where attrition can erode deal value. As one expert notes, "Getting compensation right builds credibility and serves as a stabilizing force during uncertainty."

Securing the Third Family: Client Trust and Transparent Communication

Clients, the "third family," are often the silent stakeholders in M&A. Their trust and continuity are essential for preserving revenue streams and brand reputation. Leeper's framework stresses the importance of transparent communication, liking it to drafting a press release that clearly conveys the transaction's impact.

Steward's acquisition of Consilium Wealth Management in July 2025 illustrates this principle. The $1.1 billion AUM deal was structured with a focus on cultural compatibility and client retention, ensuring that Consilium's clients perceived the transition as an enhancement rather than a disruption. This approach aligns with broader industry trends: 72.2% of wealth advisory M&A transactions in 2025 involved private capital-backed buyers, underscoring the need for clear client messaging to maintain confidence.

Case Study: Steward Partners' Structural Shifts

Steward Partners' evolution in 2025 exemplifies how compensation structures can drive M&A success. By prioritizing advisor independence and scalable infrastructure, the firm has executed a series of acquisitions that balance growth with cultural integrity. Its profit-sharing model ensures that employees and advisors are aligned with client outcomes, while its national expansion-supported by strategic capital enables integration readiness without compromising local relationships.

Conclusion: Compensation as a Catalyst for Success

In M&A, compensation structures are not just transactional-they are behavioral and relational tools. By applying Eric Leeper's Three Families framework, organizations can design incentives that align principals, staff, and clients with shared goals. Earnouts, profit-sharing models, and transparent communication are not merely risk-mitigation strategies but foundational elements of value creation. As the 2025 wealth advisory landscape demonstrates, firms that master these levers will outperform peers in both deal execution and long-term investor returns.