In the employee model, the senior executives are supposedly not taking very large financial risks. The bonuses are discretionary, but they tend to fall in a predictable range, and the salary is usually fixed, growing incrementally and slowly over the years.
In the participant model, the senior executives are metaphorically “rolling the dice” along with the ultra-wealthy family they are working for. So they might make little or no money, or they might create substantial personal wealth.
Our survey of 134 senior executives found that the majority, 69.4% worked under the employee model.
Total compensation for senior management in this model ranged from a high of $765,000 to a low of $78,000, while the average was $358,700. The median was slightly higher at $360,000. The mean salary was $304,900, while the average bonus was $47,000 and the average additional payments were close to $7,000.
In the participant model, the average total compensation for senior management ranged from a high just north of $14 million to a low of zero, with the average being around $1.9 million. The median total compensation was slightly over $1 million.
The mean salary for the participant model was $201,500 while the average bonus was $574,300 and the average additional payments were slightly less than $1.2 million. While one senior executive earned more than $14 million, two of them earned nothing.
These findings, along with previous research, suggest that the employee model is fairly stable. Senior executives earn a few hundred thousand dollars per year—year in and year out, fairly consistently. By contrast, the participant model shows more earnings variation over time. There are good years (some exceptionally good) and there are bad years (some exceptionally bad).
The key to personal wealth accumulation in the participant model is in the additional payouts. These often come from the discrete investments of the single-family office that the senior executives are participating in. The investments that generally produce the greatest earnings increases are venture capital and private equity deals. But their value to executives means more during the particular years they are monetized.
These and other compensation surveys suggest that the earnings of senior executives are prone to regression to the mean. Still, by comparing total compensation figures across time, we see that the senior executives under the participant model—on average—do substantially better than those under the employee model.
Negotiating A Compensation Arrangement
Regardless of the trends, however, most high-end compensation arrangements don’t follow a set formula, nor do those at single-family offices. There are often unique considerations at each office, and benchmark data is only a starting point. It’s clear, when you examine how these arrangements are often put together, that the executive’s negotiating proficiencies come into play, and a superior negotiator tends to do appreciably better. This is the case regardless of which compensation model is used. In fact, a person’s negotiating capabilities can result in