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Family reward

How much do family offices pay? Few seem to know, but through an extensive survey of the sector in the UK and Switzerland, CampdenFO in association with the executive search firm Sulger Buel & Company reveals just how much offices are compensating their top staff. The numbers make fascinating reading.
Family reward

If family offices are considered part of the financial services industry, then how much they are paying their senior managers is arguably the least transparent of the entire sector. That of course suits family offices, which for the most part guard their confidentiality more than most other areas of the financial services sector. But things are opening up.

“Compensation, which is still a bit of a taboo for confidentiality reasons, is now more discussed by families and their family offices – and outside,” says Christian Sulger Buel, managing director at Sulger Buel & Company.

Hedge funds and private equity suffered hugely from the financial crisis fallout that started in 2008 – but not so for family offices, or at least not publicly. That’s only served to enhance the intrigue around them and made them more of an attractive place to work.

And there is no doubt that demand for family office personnel has grown gradually since the onset of the financial crisis in late 2008, but until now there has been little, if any, idea of how much senior workers at family offices are paid.

The CampdenFO/Sulger Buel & Company survey spoke to more than 25 family offices in the UK and Switzerland to find out how much exactly they pay. Unsurprisingly, the survey found that pay varies considerably in terms of what type of family offices managers work for and where the family office is situated. Total pay is also considerably less in many incidences than found in other parts of the financial services sector – certainly much less than in investment banking.

The UK
London-based single family offices pay their chief executives anything from £150,000 to £390,000 (€179,000 to €465,000). Bonuses – when they are paid – are likely to be anywhere between 20% to 50% of base salary. Performance and/or protection of wealth are likely to be the benchmark by which bonuses are paid.

Chief financial officers and chief operating officers are paid between £70,000 and £230,000 base at a London-based SFO. Bonuses are likely to be paid on a discretionary basis and are typically anything from 15% to 20% of base salary. Chief investment officers are paid between £100,000 and £250,000. Bonuses are likely to be either discretionary or based on selected benchmark index performance – sometimes a bonus will be made up of a combination of both.

When it comes to SFOs outside of London, chief executives are paid a base salary of between £110,000 and £175,000. Bonuses are likely to be between 10% and 50% of base salary, but there are many UK regional offices that don’t pay a bonus to their chief executive. CFOs and COOs are paid a base of between £75,000 and £85,000 with a bonus of up to 15% to 20% of base. Regional SFOs are likely to have to pay a similar base salary to CIOs as that paid in London, with salaries ranging of between £80,000 and £250,000. A similar bonus is paid to regional CIOs, based on discretionary and/or performance criteria.

Multi family offices
Compensation at multi family offices is likely to be less than for senior managers at SFOs, particularly if the senior managers are shareholders. The research found that chief executives are paid between £110,000 and £200,000 annually at UK-based MFOs. CFOs and COOs are paid more in line with their counterparts at SFOs, with base salaries between £80,000 and £240,000, although bonuses are likely to be higher, sometimes as much as 70% of base. Bonuses are also likely to be discretionary and based on growth in assets under management, performance and profitability.

Switzerland
Regional differences between salaries at family offices are likely to be minimal in Switzerland, but differences do emerge between a family office managing international money and one managing Swiss-based wealth.

SFOs managing international money are likely to pay well – very well. The survey reveals that chief executives here are paid between CHF400,000 and CHF650,000 (€330,000 to €537,000). The starting base salary is considerably higher than for an SFO in London, but the top pay in the sector isn’t hugely different. Bonuses, when they are paid, can be up to 50% of base salary and total packages can be more than CHF1 million.

CFOs and COOs are also paid more at Swiss SFOs when there is international money involved. Base salaries start at CHF300,000 – and can go as high as CHF600,000 – while bonuses can be as much as 40% of base. CIOs again are paid more than their UK counterparts with base salaries starting at CHF400,000, but unlikely to go much beyond CHF500,000. Bonuses can be dependent on a rate of return spread over several years.

SFOs managing money that is Swiss-based pay their CEOs between CHF200,000 and CHF500,000, with bonuses typically 20% to 40% of base. CIOs are paid from CHF250,000 to CHF450,000 plus a discretionary bonus, or one based on a benchmark. The CIO position in such family offices is sometimes fulfilled by the CEO. COO and CFO base pay is between CHF200,000 and CHF400,000, with a discretionary bonus.

Multi family offices

MFOs in Switzerland pay their CEOs between CHF350,000 and CHF400,000 with bonuses anywhere between 50% and 100% of base. CIOs are likely to start on a lower base than their counterparts at SFOs, with base salaries starting as low as CHF100,000, but this can rise to more than CHF250,000. Bonuses of up to 70% of base aren’t uncommon.

Apart from the numbers, the main anecdotal findings of the research were:

  1. New-money family offices are likely to pay more than old-money offices – this was found to be the case in both Switzerland and the UK.
  2. Job satisfaction is likely to be a big reason to work for a family office – most senior managers cite this as a main reason for working at a family office.
  3. Family offices, where the fortune was made from the financial services sector, pay more for senior staff than family offices with non-financial services fortunes behind them.
  4. Since the financial crisis, performance and bonus are computed more and more over a three-to-five-year period with clawback options more common. In general, bonuses are much more locked up these days, reflecting larger trends in the financial services sector.
  5. MFO compensation is likely to be much more about the stock controlled by the partners and their senior staff, so salary and bonus figures are likely to be much less relevant for them. Where senior staff at an MFO aren’t linked to the business through shares, then compensation will play a bigger role.
  6. MFOs have a dynamic of asset gathering, so compensation of the front office is more sales driven.
  7. Senior staff are likely to invest along with what the family is doing so investment interests are likely to be in line with each other – this isn’t always the case at private banks.
  8. The CIO job function doesn’t always exist; indeed evidence suggests this is being increasingly outsourced in Europe, along with other investment functions. Also, sometimes a CEO will cover the CIO position.
  9. Due to their size and staff numbers, most MFOs provide more opportunities for career progression, while SFOs provide more security.
  10. Due to their importance in monitoring risk, CFOs/COOs have assumed a much more important role at all family offices since the financial crisis, which has had a corresponding affect on their salaries.

US vs Europe

A direct comparison between family office pay in the US and Europe isn’t easy to do, given the difficulty of comparing family offices in one country let alone geographically, as well as issues relating to data. But it seems US family offices pay their senior staff more – a lot more.

According to a study conducted by Prince & Associates, a US-based consultancy firm specialising in wealth management, an executive director at an SFO in the US can earn up to $2.9 million (€2.2 million) annually. That was in 2009 and much of that – $2.6 million – is likely to be a performance bonus.

The average pay, stripping out bonuses, for senior employees in the US is likely to be much more in line with their European counterparts – at $340,000.

US family offices are more likely to pay bigger bonuses and follow a so-called participant model, where senior managers are expected to take more responsibility for wealth creation, or not. That provides an opportunity to make hefty pay packages when times are good, but considerably deflates these when times aren’t as good.

The Prince survey found that 56.6% of family offices in the US said they were employed under the traditional model – that is, salary rather than performance bonus. The rest had their compensation linked to performance, or the participation model.

Families have been resistant to adopting the participation model, given that it can cost considerably more. “Families are fighting it because it’s going to cost them money, but you need to pay people what they can earn elsewhere,” says Russ Prince, president of Prince & Associates. “Top people are not interested in downsizing, and they want to earn more money, not less.”

The enormous compensation packages in the US are attracting attention in Europe, where SFO executives do not habitually expect to be paid as much as bankers or hedge fund managers. Despite the growth of the bonus culture at European family offices, few analysts think the model will be adapted to the same extent across the Atlantic. 

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