For this compensation survey, a number of factors provided by the family offices participating were analyzed, including number of full-time employees and number of family members, to support the approach of providing compensation data based on four AuM levels.

The blending of roles is common in family offices, family member executives tend to be paid less than non-family member executives, and family office complexity increases with AuM – those are among the findings from Fidelity's 2015 Single Family Office Executive Compensation Survey.

Compensation decisions in family offices, including salary increases and bonus/incentive compensation, have historically been very discretionary, Trish Botoff of Botoff Consulting, which specializes in compensation and benefits consulting for family offices and family businesses, told Family Wealth Report.

But as the sector evolves and becomes more sophisticated, there is a growing need to approach the compensation process in a more formalized manner. This formalization is manifesting in a number of ways, Botoff said, including: through the executive search/recruiting process (with candidates requesting more formalized arrangements documented through offer letters or employment agreements); the increase in family offices taking a direct investment approach and hiring internal investment professionals; and the increasing use of long-term incentive plans to attract, retain and align the interests of executives and investment professionals with the interests of the family.

The data

“Some of the data was a validation of what we already thought, particularly around the blending of family office executive roles, the geographical differences and how family office executives that are family members are paid less in many cases,” said Kim Sheehy, vice president of Fidelity Family Office Services.

Fidelity's data from 216 family offices shows, expectedly, that executive salaries are higher at family offices with higher AuM levels. The median reported base salary for a chief executive at a single family office with over $1 billion in AuM is $550,000 and $248,000 among those with less than $250 million; for a chief financial officer at a single family office with over $1 billion in AuM it's $282,500 and $195,000 among those with less than $250 million; for a chief investment officer at a single family office with over $1 billion in AuM it's $420,000 and $252,000 among those with less than $250 million; and for a chief operating officer at a single family office with over $1 billion in AuM it's $276,000 and $175,000 among those with less than $250 million.

The data also shows that family member CEOs make nearly a fifth (18 per cent) less base salary and 30 per cent less total direct compensation than non-family member CEOs.

“A family member serving in an executive role is more predominant in family offices with AuM less than $500 million, and even more so in family offices with AuM less than $250 million,” Botoff said. “Many family member executives may take the approach that they don’t have a financial need to be paid a competitive salary, and compensation isn’t the most tax-effective method of accessing resources.  The result is that they are more willing to take less, or no compensation at all, for managing their own assets.  Additionally, family member executives rarely participate in long-term incentive plans, which results in the increased gap for total direct compensation.”

She added: “As the AuM and complexity of the family office increases, it becomes more likely that family members will serve in oversight or board roles and hire an experienced management team.  In more complex family offices that are likely  serving multiple generations and family branches, it becomes more common for family members to be paid competitively.  In these situations the family member will typically be well qualified for the role, with appropriate qualifications and external experience.”

Fidelity's findings show that the CEO role is most commonly performed by a family member, as reported by 27 per cent of all respondents, while the CFO role is the least common position to be filled by a family member (5.1 per cent). The CEO role is also filled by a family member more commonly among family offices with less than $250 million in AuM (45 per cent) than among those with over $1 billion (9.7 per cent). The roles of CIO, CFO and COO weren't filled by any family members among family offices with over $1 billion in AuM.

As highlighted by Botoff, the data also supports the notion that family office complexity increases with AuM. The average number of in-house staff at family offices with less than $250 million is six, for example, rising to seven among those with $250 million-$499 million; 11 among those with $500 million-$999 million; and 23 among those with over $1 billion.

The blending of family office roles is also common, with the CEO role being the position that is most likely to function in other executive roles and the CIO being the least likely position to function in other executive roles.

Meanwhile, geography seems to have an impact on compensation levels, with New York, Boston, Chicago, Los Angeles and San Francisco mentioned as premium locations.

“Typically, salaries in metro areas such as New York, Boston, Chicago, LA and San Francisco are higher, so we looked at those cities first for comparison,” said Kim Sheehy, vice president of Fidelity Family Office Services. “We expected that to be consistent for family office salaries as well – and it was.

“We also learned that for some family offices in more remote locations, the salaries were high, too, mainly because they need that level of compensation to attract talent to the area.  These findings aren’t specific to the family office space – this is generally true across all industries for executive compensation,” said Sheehy.