The major differences between the two types of directors were more clearly illustrated when we deconstructed their compensation. Employee directors had a compensation range from $86,000 to $580,000, with a mean total compensation of $303,000 and a median total compensation of $205,000. Participant directors, however, were remunerated at much higher levels. The range of compensation for the participant directors was from $0 to $4.2 million, with a mean total compensation of $3.3 million and a median total compensation of $1.9 million. Some participant directors perform their duties without receiving a salary or benefits and are compensated solely on the performance of the family office. This arrangement is seen most frequently with executive directors who carry responsibility for investment oversight or are family members, or both (Exhibit 3).

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).

Given the gap in how employee directors and participant directors are paid for their roles in the family office, it is not surprising that the two groups have disparate perspectives on the future importance of certain compensation elements. Participant directors consider the following three items the most important for future compensation schemes: the link between investment success and compensation; the opportunity to have an equity stake in family office deals; and deferred compensation programs.


And while more than 80 percent of employee directors would like to see a link between investment performance and compensation, they also want success fees that relate to noninvestment and tax-related goals. Employee directors are less concerned with deferred compensation plans, but were five times more interested in receiving more perks as part of their compensation. The employee directors’ generalist tendencies and broader role in the family office organization translates to their more inclusive perspective on compensation. Conversely, participant directors often fill more of a specialist role, especially as it relates to investment responsibilities and results (Exhibit 11).

It is no secret that compensation is a powerful motivator for most professionals, as well as the barometer many use to measure performance, career progress and self-worth—and this is certainly the case with executive directors. A director is in a critical and demanding position in any single-family office; these professionals need a combination of business, interpersonal and technical skills to be truly effective. In short, the success of a family office often hinges on the executive director; changes or departures can be disruptive and costly. Goal alignment between employer and employee disperses conflicts and creates synergy while offering significant upside earning potential for the directors. This arrangement gives directors a stake in the family office and enables them to share in both the risk and the reward of running the organization.