A study drills into the details of how and why family office compensation plans are changing in the US.

A study of single family offices by Morgan Stanley and Botoff Consulting shows that the vast majority (87 per cent) of these organizations review and adjust compensation annually. Some 40 per cent of them have bumped up salaries between 4 and 10 per cent. 

Some 84 per cent of respondents were awarded bonuses in 2018, up from 80 per cent from 2017, the study, issued by Morgan Stanley’s Single Family Office Advisory group, said. The data sources referenced in the study reflect more than 300 family offices.

“Understanding not only the competitive landscape, but also the trends driving the landscape, is critical to recruiting and retaining the best talent,” Valerie Wong Fountain, head of Signature Access at Morgan Stanley, said. 

The study found, perhaps unsurprisingly, that as assets under management of SFOs rise, these structures will employ non-family members as executives, part of a professionalization trend noted in other surveys of the sector, such as from Fidelity. Separately, this news service has spoken to practitioners about family offices' use of headhunters to source senior talent.

Compensation for executives is directly correlated with assets under management, especially from a total direct compensation perspective, the study showed.

Family offices are making more use of long-term compensation plans. These organizations are getting more complicated – a driver of such compensation approaches, the study continued.

Three out of five family offices provide some form of LTI, with co-investment opportunity and carried interest being the most prevalent. 

A majority of family offices still award discretionary bonuses, creating a gap with best practices. 

“LTI is an important recruitment and retention tool in today’s increasingly competitive landscape. Families considering adding LTI to their compensation plans should ensure that the incentives match their family’s values and goals, as well as the current market environment,” Fountain said.

“Most families continue to award bonuses on a discretionary basis in addition to offering LTI plans, making it clear that there is no silver bullet for winning the talent race. Every family is unique; therefore, every compensation structure will be unique,” Fountain said. 

What causes pay rises

Source: Morgan Stanley

Candidates
The report discusses that candidates often do more research on a potential family office employer than the family office does on the candidate, demonstrating that families must make their compensation plans a priority. Candidates who feel that a family office has well-defined plans for compensation, performance management and governance are more likely to leave their current post to join a family.

CEO compensation

Source: Morgan Stanley

The coasts
New York City and San Francisco continue to lead the country in cities that command a geographic premium for compensation, the report said.

The Morgan Stanley Family Office Compensation Benchmarking Report presents a composite of market data from a variety of data sources reflecting family office and general industry roles. The study includes national averages, plus data for San Francisco, New York, Chicago, Miami, Los Angeles and Boston. Data was aged to January 1, 2019.

Morgan Stanley’s Single Family Office Advisory is part of Signature Access within Family Office Resources, a platform of specialized services for ultra-high net worth clients.

A report issued in February 2018 by Fidelity Family Office Services, found that firms with higher assets under management figures support more family members but also have more employees, producing a higher employee-to-family member ratio. Perhaps unsurprisingly, as AuM grows, more non-family members take on executive roles. Compensation for executives is “directly correlated with AuM, especially from a total direct compensation perspective.” Family member compensation is generally less than for non-family members - the former earn 13 per cent less in base salary and 23 per cent less in the total pay package in FOs with AuM of $500 million or less. Some 40 per cent of salary increases are above the national average; 40 per cent of family offices use a formalized annual incentive plan or a mix of discretionary decision-making and a formalized plan, that report said.