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Family offices offer long term incentives in bid for top talent

Nearly half of family offices offer senior staff co-investment opportunities as part of their compensation package, new research suggests.

Nearly half of family offices offer senior staff co-investment opportunities as part of their compensation package, new research suggests.

Other popular forms of compensation for investment staff include carried interest, offered by 38% of family offices; deferred incentive compensation (28%); and leverage through recourse loans (12%).

The findings come from the 2017/2018 Compensation Survey of Investment Professionals in Single Family Offices—a study of 152 US-based single family offices by McNally Capital, Botoff Consulting, and Mack International. It provided data on 303 investment professionals.

“The use of long-term incentive compensation has been a growing trend in family offices,” the report said. “This reflects a maturing industry.”

Overall, more than 60% of family offices use long-term incentives (LTIs). The use of LTIs increased as assets under management (AUM) increased—87% of family offices with AUM of more than $1 billion use LTIs as part of staff compensation.

Linda Mack, president of Mack International, said as the prominence of single family offices grows, there was “an increased need to understand competitive trends in compensation in order to successfully retain the top talent needed”.

Of those surveyed, 9% had AUM of less than $100 million and employed an average of 3.4 staff; 21% managed $100—$299 million with 5.6 staff; while 11% had AUM $300—$499 million and 9.1 staff.

Moving into higher AUM bands, the 22% with $500—$999 million had 9.7 staff; while 19% managed $1—$1.9 billion; and 18% managed more than $2 billion in assets. These final two bands employed 29.6 people on average.

Higher AUM also meant more formalised structure around annual incentives. While 18.7% of family offices were yet to grant base salary increases at the time of survey mid-2017, 40% reported salary increases between 4% and 10% or more, which outpaces the national average of 3.1%.

Meanwhile, Campden Wealth’s Global Family Office Report 2017 (GFOR 2017) surveyed 262 family offices from around the world and found chief executives had a pay rise of 9.8% last year, with the average base salary rising to $367,000 this year.

The GFOR 2017, produced in conjunction with UBS, found chief operations officers got the biggest average raise (10.1%), pocketing $215,000 base compared with $195,000 the year before. Chief investment officers were paid $314,000, while chief financial officers got $213,000.

Susan Ward, managing director of UK global family offices at UBS, said since the global financial crisis, family offices were doing less outsourcing and instead wanted in-house expertise. They were also taking on higher-risk assets with greater complexity in the search for elusive returns.

“Willingness to spend [on staff] is being driven by family offices moving into asset classes they are not necessarily comfortable with, as yield is hard to find. They need to pay the right people to do that because they need to manage that risk,” Ward said.

Family offices in North America had the highest returns—8% on average—of any region during 2016, according to GFOR 2017. Their chief executives were rewarded accordingly the following year, topping the regional pay rankings earning an average base salary of $411,000.

US chief executives also received the highest proportionate bonuses, 54% of base, bringing total compensation to $631,000. Their European counterparts grossed $497,000, while chief executives in Asia-Pacific and emerging markets earned $362,000 and $408,000 respectively.

Agreus, a London-based family office resourcing and recruitment specialist, also produces an annual Family Office Compensation Benchmark Report.

The 2017 edition showed more than half of the 250 family offices surveyed had existed for more than 10 years. Equities were the most popular asset class (91% had at least some exposure), followed by property (86%), and private equity (85%).

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