Finding and retaining talent has emerged as a family office’s top challenge when it comes to human resources, according to new research from Family Office Exchange.

Finding and retaining talent has emerged as a family office’s top challenge when it comes to human resources, according to new research from Family Office
Exchange.

Other common issues cited by the research participants include: providing competitive compensation; managing workload with limited staff; planning for employee succession; and letting go of non-performing staff.

“In addition to technical expertise,
the family office environment demands a willingness to ‘wear many hats’ and do
whatever it takes to ensure that the owners are satisfied,” senior consultant
and lead researcher Jane Flanagan says in FOX’s latest report, Family Office Compensation &
Benefits.

“Often, finding the right cultural fit
is just as challenging as finding the correct skill set,” Flanagan said. (Click here to view a recent feature on recruitment at single family offices).

Indeed, it has been argued that in a client
service-based industry such as wealth management, it is the people that make or
break the business.

“Consequently, having a competitive compensation plan that is consistent with the family’s culture and values and motivates all to work toward the office’s goals is paramount,” FOX said, adding that compensation and benefits is “consistently the biggest line item in every family office budget.” 

The organization believes that a
compensation plan should attract and retain “the best talent your resources
allow,” as well as motivate the team and “offer the maximum benefit for the
cost.” Most offices, the survey found, provide coverage in the areas of
medical, dental, vision, life insurance, accidental death, short- and long-term
disability.

The study involved 122 family office
participants; 88 per cent are US-based and 57 per cent own an operating
business. Staff sizes range from one to 120, while the median family office staff count is
seven.

HR practices

The fact that only 9 per cent of participants outsource human
capital issues to a professional employer organization indicates that this type
of work is “typically an inside job,” FOX said. Meanwhile, just 14 per cent of
participants rely on an internal HR director, indicating that most of this work
is done by the office’s management team.

In an attempt to provide their employees with “meaningful career paths,” 66 per cent of
family offices have documented job descriptions for each employee and 75 per
cent carry out annual performance reviews. However, employment contracts and
severance policies are scarcer, at 30 and 21 per cent respectively.
Interestingly, FOX said, office executives in small offices are more likely to
have employment contracts (17 per cent) than those in large offices (3 per
cent).

It was also found that accounting,
reporting and compliance matters consume the biggest amount (around 30 per cent)
of family office staff time among both small and large offices. As highlighted
by FOX, the only notable difference is that large offices tend to spend more
time on investment planning, while small offices spend twice as much time as
large offices on the needs of the operating company or business management.

Meanwhile, as regards who makes the
decisions related to staff compensation and benefits, 57 per cent said it was
the family office management team. After this the governing board (35 per cent)
had the biggest say, followed by: principle family members (21 per cent); the
operating company (5 per cent); and a range of the previously-mentioned (2 per cent).

Compensation trends

An overwhelming 80 per cent of
family office positions saw their salaries increase this year, up from
two-thirds in FOX’s 2011 compensation study. Interestingly, executives in the global financial services sector were expecting base salary
increases of 2.2-2.5 per cent this year - down slightly from 2.9 per
cent in 2011, according to data from Mercer earlier this year (view here). 

In FOX's latest survey, most participants (63 per
cent) reported offering short-term incentive compensation, while just 32 per
cent offered long-term. Large offices were more likely than small offices to
offer both, FOX noted. Meanwhile, just
over half 54 per cent of reported positions received a short-term incentive this year, with the
median short-term award being 12 per cent of base salary.

Despite the above-mentioned challenges, employees
cited five attractions to working in a family office. They are:
continuous learning opportunities; strong client relationships; ability
to generate long-term impact; entrepreneurial environment; and
flexibility.