The right bonus
Annual bonuses should never paid as a percentage of the total family's wealth. The reasoning behind this is straightforward. Should the Chief Investment Officer (CIO) of a billion-dollar family office receive ten times more than the manager of a 100-million-dollar family office for doing the same job? The answer is no.
At the end of the year, when bonus discussions arise, the contributions of the CIO are recognized. This includes recommending specific stocks or investments, timing the buys and sells, and monitoring them closely. However, it is essential to remember that it is the family who funds the investment, assumes 100% of the risk, and ultimately makes the decisions and chooses the assets.
If the family decides to invest 20 million instead of 10 million, the contribution of the CIO to the value created remains unchanged. There is no issue with a bonus doubling, tripling, or even quadrupling a salary when there is an exceptionally outstanding performance. However, this bonus is always calculated as a percentage of the salary, not as a percentage of the assets under management.