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2016 FOX Family Office Compensation & Benefits Survey Executive Summary F00175 About this Report The 2016 Compensation and Benefits Report is designed to aid family office board members and executives
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2016 FOX Family Office Compensation & Benefits Survey Executive Summary F00175 About this Report The 2016 Compensation and Benefits Report is designed to aid family office board members and executives in their review of the office s compensation plan. The report highlights the key areas of family office compensation and benefits and provides you with invaluable perspective on your office s plan relative to your peers. This year s survey was developed in partnership with Grant Thornton, and we are pleased to present this report which includes a new design and layout, expanded information and analysis, and a larger group of participants than in years past. We wish to thank all of the executives in the 151 offices who contributed their time and data to this effort, and we are confident that you will find this survey to be a valuable tool to help you benchmark your office s performance FOX Family Office Compensation & Benefits Survey Table of Contents Demographics Survey Participants 4 Staffing and Family Leadership 6 Profile of Today s Family Office Small Office 7 Large Office 8 $Billion Office 9 Office Employee Demographics 10 Human Resource Practices HR Resources 11 HR Decision-Making & Plans to Grow the Staff 13 Satisfaction with Compensation & Benefit Plans 14 The Family Office Approach to HR 15 Employee Training and Development 16 Incentive Compensation Short-Term Incentive Compensation 17 Long-Term Incentive Compensation 19 Other Benefits Retirement Plans 23 Vacation and Paid Time Off (PTO) 24 Flexible Work Options 25 Board Compensation 26 About This Report 27 About Family Office Exchange 28 About Grant Thornton FOX Family Office Compensation & Benefits Survey Demographics Survey Participants This year s survey was completed by 151 family offices, a sizeable increase in participation from the past few years. The following several pages provide detail on the size, scope and organizational makeup of the participating offices. In addition to detailing information by office employee size, this year s survey also reports findings based on the size of the offices investable assets. Number of Offices Responding to the Survey Small Large Total $100M or less $101-$250M $251-$500M $501-$999M $1B Total Note: 151 offices responded, 2 did not report investable assets Family Office Total Investable Assets n=149 $501-$999M $1B+ 28% 16% 14% 20% $100M or Less 22% $101-$250M $251-$500M Distribution of Investible Assets by Office Size (Assets $ Millions) $1,500 $1,267 $374 $100 $250 $200 $633 $500 Average 25th Percentile 50th Percentile 75th Percentile Small (1-6 FTEs) Large (7+ FTEs) n = 64 n = FOX Family Office Compensation & Benefits Survey Demographics Survey Participant (continued) Does the family own one or more operating businesses? YES 51% NO 49% n=151 What percentage of the overall family wealth do these businesses represent? Average 40% 25th 20% 50th 33% 75th 65% n=71 What best describes the primary focus of your family office? n=149 33% 17% 15% 13% 10% 7% 3% 1% Multi-generational Office Investment Office Family Enterprise Office Founders Office Compliance Office Family Office Embedded in the Operating Business Multi-family Office Other What best describes your office? n=148 Single family office 88% Family office within an operating business 5% Single family office offering financial products to other family clients 5% Other 1% FOX Family Office Compensation & Benefits Survey Demographics - Staffing and Family Leadership What is the size of your office (in full-time employee headcount)? Small (1-6 FTEs) 56% Large (7+ FTEs) 44% Which generation(s) leads the family? n n=115 = 1 63% Generations 1 & 2 (Gen 1-2) 37% Generation 3 or later (Gen 3+) Number of Full-time Employees (FTEs) n= Average 25th Percentile 50th Percentile 75th Percentile Number of FTEs Average 25th Percentile 50th Percentile 75th Percentile Number of Adult Households Average 25th Percentile 50th Percentile 75th Percentile $B Offices n = G3+ n = Large (7+ FTEs) n = $B Offices n = Gen 3+ n = Large (7+ FTEs) n = Universe n = Universe n = Gen 1-2 n = Small (1-6 FTEs) n = Small (1-6 FTEs) n = G1-2 n = FOX Family Office Compensation & Benefits Survey Profile of the Small Office Characteristics of Small Offices (1-6 FTEs) n = 67 Medians Number of adult households served 4 Staff size 3 Investable assets $200M Still own an operating business(es) 48% Gen 1-2 family leadership 75% Offer short-term incentive compensation 72% Offer long-term incentive compensation 25% 2015 Average annual budget for employee training and development $17,000 77% of respondents saw an increase in their base salary in 2016 n=176 n = 176 The median increase in base salary during 2016 was 3% 85% of respondents expect to see an increase in their base salary in 2017 n=175 n = 175 The median salary increase in 2017 is expected to be 3% FOX Family Office Compensation & Benefits Survey Profile of the Large Office Characteristics of Large Offices (7+ FTEs) n = 84 Medians Number of adult households served 7 Staff size 12 Investable assets $633M Still own an operating business(es) 54% Gen 1-2 family leadership 54% Offer short-term incentive compensation 60% Offer long-term incentive compensation 33% 2015 Average annual budget for employee training and development $35,000 76% of respondents saw an increase in their base salary in 2016 n n=626 = 626 The median increase in base salary during 2016 was 3% 89% of respondents expect to see an increase in their base salary in 2017 n n=490 = 490 The median salary increase in 2017 is expected to be 3% FOX Family Office Compensation & Benefits Survey Profile of the $Billion Office Characteristics of $Billion Offices n = 41 Medians Number of adult households served 7 Staff size 14 Investable assets $1500M Still own an operating business(es) 51% Gen 1-2 family leadership 51% Offer short-term incentive compensation 73% Offer long-term incentive compensation 39% 2015 Average annual budget for employee training and development $49,000 91% of respondents saw an increase in their base salary in 2016 n=329 n = 329 The median increase in base salary during 2016 was 3% 95% of respondents expect to see an increase in their base salary in 2017 n=249 n = 249 The median salary increase in 2017 is expected to be 3% FOX Family Office Compensation & Benefits Survey Office Employee Demographics Gender of the Family Office Staff Male Female Office Management n = 176 Administrative n = 160 Tax and Accounting n = 296 Investments n = 112 Philanthropy n = 28 Relationship Management n = 64 11% 32% 21% 27% 60% 86% 89% 68% 79% 73% 40% 14% Other* n = 21 71% 29% *Includes: Pilot, Insurance and Risk Professional, Compliance Average Age of the Family Office Staff Office Management n=175 Investment Professionals n=112 Tax and Accounting Professionals n=291 Administrative Staff n= Stat Snap The majority of family office employees are women, accounting for 59% of the total employee count. However, statistics for executive position gender reveal the opposite, with 60% staffed by men. The age of the CEO s who participated in the survey ranges from 29 to 85, with an average age of FOX Family Office Compensation & Benefits Survey HR Resources As the economy continues to improve, attraction, retention and engagement of qualified family office employees is the primary challenge of the human resources function. The majority of offices have internal staff performing this role but only a small percentage (6%) have a formal Human Resources Manager position, with this function being performed by office executive staff. Internal HR Resource n=125 Controller Human Resources Manager Operating Business HR Department 10% Other 6% 4% 3% 64% Office Executive (e.g., CEO, CFO, COO, Director) Office Manager/ Administrative 13% Who coordinates the human resources function in your office? n=149 85% 86% 84% Professional Employer Organizations (PEOs) Used by Participants ADPTotalSource HR ala Carte Gallagher Benefit Services Inc. HRnovations Insperity Payroll Services/Paychex The Orsus Group ThinkHR TriNet Ambrose 8% 9% 7% 5% 7% 8% Universe Small (1-6 FTEs) Large (7+ FTEs) Internal External Both FOX Family Office Compensation & Benefits Survey HR Resources (continued) What is your greatest human capital challenge? n=119 30% n = 119 Finding competent, experienced staff 17% Retaining talent 6% 11% 11% 8% 8% Employee development Organizational effectiveness Heavy work load for limited staff Offering competitive compensation and benefits Employee succession 6% Maintaining a positive culture / motivation 3% Next Gen leadership Stat Snap 58% of survey participants have identified that their top human capital challenge is related to the attraction, retention and development of their employees. This increase in focus on these topics highlights the significance of ensuring that your total rewards program is competitive and balances the needs of the family office with that of its employees FOX Family Office Compensation & Benefits Survey HR Decision-Making & Plans to Grow the Staff Who makes the decisions related to staff compensation and benefits? n=150 Family Governing Board Family Office Governing Board Compensation Committe of Governing Board 17% 10% Family Council 9% 7% 61% Family Office Management Team 25% Other* *Includes: CEO with approval of founders; Founder; managing members and directors; CFO; COO; G1; G3 What was the employee turnover rate for 2015? n=146 No Turnover 59% How likely is it that your office will hire additional full-time employees in 2016? n=150 Unknown 10% 1-10% 11-33% 34% or higher 2% 17% 22% Likely Unlikely 31% 59% FOX Family Office Compensation & Benefits Survey Satisfaction with Compensation & Benefit Plans Satisfaction with compensation plan n=151 Satisfaction with benefits n=151 1% 12% 5% 12% 4% 83% are satisfied 52% 83% are satisfied 42% 31% 41% Satisfied Neutral Very Satisfied Dissatisfied Satisfied Very Satisfied Neutral Dissatisfied Very Dissatisfied Satisfaction with retirement plan n=147 Satisfaction with vacation/paid time off n=151 4% 4% 10% 3% 14% 77% are satisfied 40% 87% are satisfied 49% 38% 37% Very Satisfied Satisfied Neutral Dissatisfied Very Dissatisfied Satisfied Neutral Very Satisfied Dissatisfied FOX Family Office Compensation & Benefits Survey The Family Office Approach to HR Stat Snap Of the family offices surveyed, it is uncommon for employees to have an employment contract. Roughly 60% of the participating offices indicated that they do not use employment contracts. Severance policies are even less common, with only 16% of responding family offices having one in place. Compensation plan is reviewed annually Every employee receives an annual performance review Every employee has a written job description Signed confidentiality aggreement on file for every employee Small Family Offices (1-6 FTEs) Large Family Offices (7 + FTEs) Universe n=67 n=84 n=151 79% 76% 77% 68% 83% 77% 57% 64% 61% 51% 77% 66% Which staff members have employment contracts? n=151 62% 66% 60% 17% 16% 5% 15% 18% 1% 19% 14% 7% Universe Small (1-6 FTEs) Large (7+ FTEs) n=151 n=67 n=84 None All Office Executives/Management Other FOX Family Office Compensation & Benefits Survey Employee Training and Development Does your office work with each employee to document a training and development plan? n=147 What was the annual budget for employee training and development in 2015? n=109 No 47% 23% In Progress Average of $27,000 The minimum budget size was $1,000; the maximum was $300,000. Ten percent of respondents have no set budget, but each request is evaluated on a case-by-case basis. 30% Yes Please describe the types of resources that area provided to employees for personal and professional development (select all that apply) n=139 Workshops, conferences, seminars Membership in professional organizations Continuing Professional Education (CPE) Tuition reimbursement 48% 81% 79% 92% Coaching Leadership training 23% 32% 91% offer a combination of training and development resources FOX Family Office Compensation & Benefits Survey Short-Term Incentive Compensation Short-term (annual) incentive compensation programs are a common fixture in nearly two thirds of participating family offices as a means of aligning employee compensation with individual and organizational performance objectives. Does your office provide annual short-term incentive compensation? n=150 No 35% Yes 65% 2016 Short-term Incentive (% of Base) Administrative n = 35 7% 10% 15% Tax & Accounting n = 93 6% 10% 15% Investments n = 48 14% 20% 45% Office Management n = 58 11% 19% 35% 25th Percentile 50th Percentile 75th Percentile 2016 Short-term Incentive ($ Thousands) Administrative n = 35 $5 $7 $14 Tax & Accounting n = 93 $5 $8 $19 Investments n = 48 $17 $40 $100 Office Management n = 58 $25 $60 $100 25th Percentile 50th Percentile 75th Percentile FOX Family Office Compensation & Benefits Survey Short-Term Incentive Compensation (continued) How is your short-term incentive compensation determined? 68% 48% 37% 18% 15% 6% Subjective management decision (discretionary) Performance related to specific objectives Performance related to investment returns Performance related to Performance related to a firmwide department or team objectives scorecard Other Nearly 70% of reporting family offices use a short-term incentive methodology that reinforces the use of subjective decision-making when determining the value of such awards. Typically, the most effective way to motivate office staff and ensure their continuous effort towards improving the performance of the family office is to tie compensation (and specifically short-term incentives) to quantifiable metrics that are dependent on the individuals participating and reflect individual and office performance. Design Tips for Short-term Incentive Plans A successful incentive plan should: Be aligned with strategy; performance measures need to focus employees on key drivers of business success Provide a return on investment Be flexible to meet the company s changing business needs Have support through proper infrastructure (processes and systems for tracking performance) Be aligned with an employee's role; it must reward what participants can influence Have a formal plan document that establishes participation/eligibility, plan period, payment schedule, termination provisions, etc. Be simple and easily understood by participants Be fair; employees need to perceive that all participants have equal stretch FOX Family Office Compensation & Benefits Survey Long-Term Incentive Compensation Nearly one-third of surveyed family offices indicate that they offer long-term incentive compensation plans (LTIPs) to their employees, with this practice more prevalent in larger offices. LTIPs are extremely effective in promoting employee retention and aligning employee interests with the family s interests. Does your office offer long-term incentives? n=151 No 70% Yes 30% 25% 33% of Small offices of Large offices offer long-term offer long-term n = 67 n = 84 39% of offices with $1 billion+ investable assets offer long-term n = 41 Which of the following long-term incentive vehicles do you provide? n=44 28% 24% 19% 13% 9% 7% Deferred compensation (cash, equity) Long-term performance awards Co-investment opportunities Carried interest Other* Phantom stock *Includes: profit sharing; CEO separate deferred annual grant; stock options and restricted stock; annual bonus; additional retirement equal to 401(k) match in non-qualified plan FOX Family Office Compensation & Benefits Survey Long-Term Incentive Compensation (continued) Long-term incentive compensation tends to be reserved for management and executive level employees. Survey respondents indicated that CEOs, COOs, and CIOs are the most likely recipients, with roughly 20-25% of incumbents in these roles receiving long-term incentives. Other management employees such as CFOs, legal counsel and controllers may also be eligible for this type of compensation opportunity. Long-term incentive compensation opportunity (2016 LT Target) as a percentage of base salary: Non-Family CEO n=13 CIO n=8 75th Percentile 64% 75th Percentile 89% Median 43% Median 53% 25th Percentile 19% 25th Percentile 37% Average 48% Average 60% COO n=7 75th Percentile 37% Median 21% 25th Percentile 15% Average 36% FOX Family Office Compensation & Benefits Survey Long-Term Incentive Compensation (continued) How are long-term incentive awards determined? n=42 48% 29% 24% are based on a multiple of base salary are based on a target dollar payout are based on an alternate methodology* 39% require a performance hurdle before any amount may be earned under the plan Stat Snap Determining the valuation methodology for the LTI plan is critical to a successful design. More than 60% of participating family offices value their plans using financial metrics related to investment performance such as rate of return (34%), increase in asset value (20%) and performance benchmarks (12%). *Alternate methodologies include: calculated based on carried interest, percentage of investment returns, or a percentage of bonus pool What is the grant schedule for these long-term incentive vehicles? n=42 Annual grants 64% One large up-front grant 14% Other* Large up-front grant with continuing annual grants of lesser amount (e.g. double grant up front) 14% 7% *Includes: subjective management decision; as required; one-year & multi-year payouts FOX Family Office Compensation & Benefits Survey Long-Term Incentive Compensation (continued) What is the vesting schedule for these long-term incentive vehicles? n=48 Once the awards are vested, over what time period are they paid out? n=42 13% 18% 25% 27% 33% 29% 45% 56% 36% 67% 14% 6% 18% Cliff vesting Ratable Performance One-year Three-year Five-year Other 12% *Includes: at vesting, a lump sum at vesting and an additional payout after termination, as requested, over 10 years, or as a lump sum upon retirement or termination Design Tips for Long-Term Incentive Plans (LTIPs) Similar to short-term incentive plans, LTIPs require a deep understanding of the goals and drivers of success in the family office, although there are additional considerations when developing a LTIP. Plans are designed to recognize the financial contributions of a select group of executives through a capital accumulation opportunity Participants share in the growth of the company without having actual equity ownership Award amount is typically based on job function and years of service Investment choices depend on the type of family office Pro-rata vesting is used by more than half of those offering plans Plans are structured to provide ongoing access to cash once payments begin In addition to alignment of financial goals, determination of value of the plan, and organization of grant structure, focus should also be placed on the various administrative terms and conditions related to payout circumstances. Plan documentation should include provisions for: Death and disability Termination with and without cause Retirement Resignation with good reason Voluntary resignation Participants indicated the following terms and conditions for payout: Another important consideration is whether or not to include a hurdle rate in the LTIP related to a certain benchmark, performance metric, or profitability standard that must be met before any payout under the plan may occur. 39% of survey participants with LTIPs currently include a hurdle rate that must be achieved. Full Payout Reduced Payout No Payout Discretionary Retirement 55% 10% 17% 19% Death, disability 66% 7% 10% 17% Termination without cause 43% 17% 21% 19% Resignation with good reason 26% 24% 26% 24% Voluntary resignation 20% 24% 39% 17% FOX Family Office Compensation & Benefits Survey Retirement Plans What percentage of the employee's salary does the office match/contribute to the 401(k)? n=112 4% 28% Other 3% 6% No match 5% 6% 10% 2 percent 3% match 1 percent 1% match 12% 1
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