Average compensation for executive directors at single family offices is nearly $1.6 million, with “participant-directors” earning much more than “employee-directors,” according to a recent Rothstein Kass study.

Average compensation for executive directors at single family offices is nearly $1.6 million, with “participant-directors” earning much more than “employee-directors,” according to a recent Rothstein Kass study.

The report, called The Compensation Variance, found that executive directors working under a participant model at SFOs earned over $3 million on average, while executive directors who worked as regular employees earned only $472,000 on average. It covered 139 executive directors at single family offices, roughly half of which were based in the US.

The wealthy family concerned and the SFO executive usually work together to reach a comprehensive strategy for compensation, said Rick Flynn, a principal and head of the Family Office Group at Rothstein Kass. Because "the needs of every family are distinct" and "no two single family offices are identical" it can be a challenge to find the right skill set, let alone evaluate compensation, he added. 

The survey highlighted the following four steps in creating a compensation plan:

- Determining the parameters: “Negotiations should begin with creating and clearly articulating limitations that are acceptable to both parties. Broadly speaking, negotiations should encompass: base salary, bonus (direct and/or deferred) and benefits.”

- Structuring the compensation package: “Once the parameters have been agreed on, implementation options must be decided.” This deals with the optimal legal structures, techniques and products to create various compensation components.

- Establishing a contingency plan is “critical but often overlooked,” said the firm, and should deal with “transitional and financial” components. The first deals with how a change in control would be handled at the family office and the second deals with the compensation package of the executive director, addressing “concerns ranging from deferred disbursement to liquidation of mutual assets.”

- Refining the compensation package: “As it can quickly become dated, the compensation plan should be refined at regular intervals by the family and executive director.”

The survey was conducted at a time when single family offices are growing in number and “represent more wealth than they did even a few years ago,” said Flynn.