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Salaries, Bonuses Increase at Single Family Offices

A new report from Morgan Stanley and Botoff Consulting finds that most single family offices still prefer discretionary bonuses to formalized annual incentive plans.

While more single family offices are instituting formalized annual incentive plans to reward staff, the majority still exclusively use discretionary bonuses, according to a new analysis from Morgan Stanley on compensation trends in single family offices. The report also found nearly every office had raised salaries in the past two years.

Botoff Consulting partnered with Morgan Stanley for the Single Family Office Compensation Benchmark Report, analyzing market data from numerous sources, including surveys conducted by Fidelity Family Office Services, Mack International and McNally Capital (as well as other proprietary databases).

The report found nearly 84% of single family offices paid bonuses this year, versus 80% last year. There was also a greater likelihood of bonuses as assets under management rose (93.5% of single family offices with an AUM of $1 billion or more offered bonuses). Sixty-four percent of offices offered discretionary bonuses that might not “reflect defined opportunity levels or performance measures,” while 8% used formalized plans only, which can incorporate predetermined performance targets and measures (27% utilized a mix of the two).

Family offices using formal compensation plans can have an advantage when seeking qualified candidates, the report suggested.

“If an employee sees that a family (office) does not have a structured approach to compensation, they are more likely to leave,” the report read. “And if candidates can’t get comfortable with the structure and nature of compensation, the family (office) is unlikely to get a second chance with their first choice of candidates.”

Nearly 40 percent of family offices increased salaries between 4% and 10% or higher, compared to the national average of 3%, according to the report. Salary increases varied by area; while most cities saw an average increase of 5%, average salary increases for single family office staff in New York and San Francisco ranged from 20% to 30% (though this could partially be a reflection of cost of living expenses). Long-term incentives are also becoming more prominent for single family office employees, with 56% of offices using them, according to the report. Co-investment opportunities were the most popular LTI, where participants make a minority investment in opportunities they might not be able to access otherwise.

Overall, the report found that single family offices were increasingly looking to outside directors to help them govern assets wisely; more structure in offices can also have an impact when looking for qualified talent.

“The existence of a board and independent directors, or lack thereof, can have an impact on the attractiveness of a family office to candidates,” the report read. “To the extent that a family is looking to attract and retain institutional quality talent, the existence of institutional quality governance is especially appealing to candidates with institutional backgrounds—whether from large institutional asset management firms or boutique private equity/hedge funds.”

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