The total compensation of directors was comprised of three
components: a base salary, a bonus and other perquisites. The differences
between the base salaries and perks for employee directors and participant
directors were marginal (Exhibits 4 and 6). The bonus, however, was how the
participant director received the majority of his pay, often more than 85
percent of total compensation (Exhibit 5). A bonus is also where the participant
director can experience the greatest upside because his income is generally
closely tied to reaching performance goals or executing a strategy or plan.
Not only do participant directors receive larger pay packages,
they also have access to better benefits than their employee director
counterparts and will be better protected if their employment status changes
(Exhibit 7).There is a very close relationship between a participant
director’s compensation and the performance goals of the family office. This
correlation is a function of the fact that many participant directors are
investment professionals and actively involved in managing the family office’s
assets against clear, quantitative targets. As a result, most participant
directors feel appropriately compensated for their responsibilities and do not
expect their compensation structure to change materially over the short term.
By contrast, very few employee directors can identify a link
between their pay and the goals of their employer. Furthermore, they feel their
pay is inadequate, but they do not expect any major modifications to their pay
structure in the near future (see Exhibit 8). Nearly all the executive directors in our study were aware of
the impact they had on the operations and overall effectiveness of the family
office, but that is where the uniformity in views ended. More than 80 percent of
participant directors anticipate greater competition for professionals like
themselves over the next few years, and one-third think it is likely they will
leave their roles in the next 12 months. Just half the employee directors expect
competition for executive directors to increase in the short term, and less than
10 percent expect to leave their jobs within the coming year. Again, the varying
perspectives can be attributed to the difference in backgrounds and expertise of
participant and employee directors, much of which is reflected in their
compensation arrangements (Exhibit 9). Logic would indicate that the commitment of participant
directors is higher given their vested interest in the success of the
organization, however satisfaction with the overall experience, working
arrangements and responsibilities at the single-family office were similar for
both types of directors. Employee directors were far less satisfied with their
compensation and the terms of their contracts. More participant directors felt
the decision-making process could be improved, allowing them to act more quickly
and help the family office take advantage of opportunities (Exhibit
10).
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