As Family Offices Become More Sophisticated, So Do Their Compensation Plans

dollar-investing-chart.jpg Darren415/iStock/Getty Images Wealth Planning>High Net Worth As Family Offices Become More Sophisticated, So Do Their Compensation Plans Family offices are relying more on salary increases and incentive compensation to compete for talent, according to a new survey by Morgan Stanley’s Single Family Office Advisory group.

More than half of family offices report recruiting challenges across roles in the last year, yet these firms are increasing salaries and becoming more competitive with how they structure their compensation plans, according to Morgan Stanley's Single Family Office Advisory Group’s latest bi-annual compensation report.

The survey of 400 single family offices, reporting data on 1,728 employees, was conducted with Botoff Consulting, and found 90% of firms gave their workers salary increases in the last 12 months, up from 2021. In addition, 93% of executives and 94% of staff had received or would be receiving an annual salary increase in 2023.

Related: How World-Leading Family Offices Are Thinking and Acting

And single family offices are offering more in salary increases than the general U.S. market, the survey said, with the majority of respondents planning hikes of 5% or more for both executives and staff. That compares to U.S. salary increase projections of 3.8% at median for 2023, according to WorldatWork data cited in Morgan Stanley’s report.

When asked about what will inform salary increase decisions, 66% of family offices said individual performance was the top factor for consideration, followed by family office market data, at 65%, discretionary factors, at 52% and cost of living, at 50%.

Related: The Reality of Artificial Intelligence for Family Offices

The report points out that, as family offices become increasingly professional, they require a more sophisticated skill set. As a result, these firms are looking at a wider pool of talent to help them fill a broader spectrum of functions.

“As such, family offices need to offer competitive compensation packages to attract and retain top talent,” the report said.

Family offices show a strong use of incentive compensation, with 81% of all executives and 78% of staff receiving bonuses for 2022 performance. Fifty-four percent said bonuses paid for 2022 were comparable to 2021, while 32% reported higher bonuses than 2021. The firms cited a number of factors for informing bonus decisions, including individual performance (73%), investment performance (56%), project-based factors (36%), organization performance (34%) and department performance (19%). The use of bonuses is even more prevalent as firms move up in AUM. 

There’s also a strong use of long-term incentive plans in single family offices, with 59% of these firms reporting the implementation of one or more of these vehicles. The prevalence of these plans increases with assets under management, with 73% of family offices with $2.5 billion or more in AUM reporting use of long-term incentive plans. These plans can be particularly useful in attracting in-house investment talent.

“What we’re seeing today is an increasing sophistication and formalization of family office structures, and it’s important for compensation plans to reflect this,” said Valerie Wong Fountain, head of Family Office Resources Partner and Platform Management at Morgan Stanley, in a statement. “The growing use of LTI plans is aiding in attracting that top talent, especially for offices that have in-house investment teams. Practices like deferred incentive compensation, co-investment opportunities, carried interest, profit sharing and equity can help keep talent who are excited by and invested in overall success for the family.”

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Originally posted on: https://www.wealthmanagement.com/high-net-worth/family-offices-become-more-sophisticated-so-do-their-compensation-plans