Single-family offices are highly customized, boutique enterprises that usually run with a small staff and may be controlling billions of investment dollars as well as addressing the wide range of legal, tax and lifestyle concerns of an ultra-wealthy family. And the degree to which such an office is successful is tightly connected to the quality and motivation of its senior executives.
While it is impossible to count the number of these offices operating worldwide, there is a general consensus among industry authorities that their numbers are increasing and the wealth they control is mounting. This trend tightly correlates to the overall growth in the number and fortunes of the ultra-wealthy.
With the boom in single-family offices, coupled with the intense interest among a wide variety of diverse professionals looking to work for these organizations, it’s sometimes difficult to source appropriate, exceptionally capable individuals to run them. Further complicating the matter is the need to suitably incentivize these senior executives.
Earning A Living
The average total monetary compensation for a senior executive at a single-family office in 2014 was $844,200 (according to a survey we performed of 134 senior executives at these offices). But the median compensation was considerably less: $385,000. This means some senior executives are being paid extremely well, while others are not. The range in total compensation went from a low of zero to a high of $14,230,000.
To get a better understanding of how senior executives are remunerated, it is worthwhile to divide their total compensation into three core components—a salary, a bonus and additional payments. When the executives do exceptionally well financially, the largest contributor is the additional payments they receive. In general, these are a function of equity participation in their offices or, more commonly, in specific investments. Or sometimes in both.
When these components are broken up, the average salary in our survey was $273,300. The average bonus was $208,400. And the average additional payments were $362,500. The median salary, meanwhile, was $300,000, while the median bonus was $60,000. (There was no median in additional payments.)
The ranges show the diversity of the payment structures. Salaries went from zero to $665,000. Bonuses went from zero to $3,550,000. Additional payments went from zero to $10,400,000.
Compensation Models
Compensation models put these numbers in perspective. Basically, there are two different types:
• Employee models: Senior executives are paid a salary and a discretionary bonus. Rarely are there additional payments. The compensation is largely determined by how the ultra-wealthy family “feels” about its performance.
• Participant models: The core remuneration for a senior executive often comes from a financial stake in the office itself, in select investments or in both.