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US Family Offices Execs' Pay Rises, More Long-Term Comp Plans - Morgan Stanley

Tom Burroughes, Group Editor , London , 23 May 2019

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

(An earlier version of this news article appeared yesterday on Family Wealth Report, sister news service to this one.)

A study of US single family offices by Morgan Stanley and Botoff Consulting shows that the vast majority (87 per cent) of these organisations review and adjust compensation annually. Some 40 per cent of them have bumped up salaries between 4 per cent 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 rises, these structures will employ non-family members as executives, part of a professionalisation trend noted in other surveys of the sector.

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 organisations are getting more complicated – a driver of such compensation approaches, the study continued.

Three out of five family offices provide some form of long-term incentives, 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 [long-term incentives] 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. 

Candidates
The report discusses how 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.

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 valid as at 1 January 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.

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