By Susan Mitchell, CEO, Mitchell, Stankovic and Associates

Connecting people to new positions through networking and recruiting is my passion, but how it’s accomplished today has changed significantly.

For more than 20 years, Mitchell, Stankovic has dedicated resources to leadership development for executives and volunteers within the credit union community. We used to receive 100 resumes for any open CEO position, and now it’s fewer than 20, mostly from bankers. Credit union leaders must roll up their sleeves and engage with executives who are already in great positions. It is not only about compensation, it is about matching talent to culture!

The pace of business creates a dynamic, competitive environment, and success is directly related to the leader’s ability to execute key strategic initiatives in a manner consistent with board directives and member expectations. Credit unions are expected to face a leadership crisis in the next five years. We must activate the legacy – get the most out of the credit union’s legacy team members and activate future leadership with the power of institutional knowledge. 

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The Social Security Administration estimates that baby boomers are retiring at a staggering rate of 10,000 per day. That means credit unions, as well as other industries, have a smaller talent pool available to fill management vacancies. Many credit union CEOs are nearing retirement age. Industry research indicates that 50% of credit union CEOs were eligible for retirement in 2013 – half of the industry’s CEOs may need to be replaced.   

Leading a credit union is becoming more difficult as its complexity grows. Increased consumer demands, shrinking margins, competitive concerns and regulatory issues are all factors in this complexity. At the same time as the expertise required to manage a credit union increases, the number of qualified applicants is decreasing. The entire financial services industry is facing a reduction in the number of available executives with the required skills and experience, so credit union executives are attractive candidates for opportunities beyond credit unions. This dichotomy will impact organizational effectiveness.

Who are the future candidates? Internal succession plans are being activated, beyond the emergency document required by regulators, and becoming quite common. Firefighters First Credit Union and SCE Federal Credit Union are just two examples of organizations that have transitioned leadership internally. Their boards engaged in active conversation and due diligence to determine the next CEO.

“Nearing Firefighters First Credit Union’s CEO retirement, I worked closely with the Board Succession Planning Committee to create an objective process,” said Mary Steudle, senior vice president of human resources. “The committee was made up of current and past chairs, to ensure a protection of the firefighter culture and positioning for the future.”

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SCE Federal Credit Union had both the COO and CEO retire within six months of each other. The leadership transition was considered a multi-year development process for all senior-level executives.  Individual development plans were created and the CEO shared progress with the board regularly.  Dennis Huber, the longtime CEO announced his retirement three years in advance to create a transparent and open leadership discussion. “I made changes to the organizational chart, adjusted reporting relationships and ask managers to embrace change,” he shared. “It simulated an external leader’s potential impact on the organization and prepared all staff for my retirement.”

SCE FCU’s situation demonstrates the importance of deep bench strength within the credit union. Pew Research Center reports that as of April 2016, the millennial generation surpassed the baby boomers as the largest generation. Significant differences exist between the generations. Millennials are changing business trends and financial services; we will need to rely more on this generation. However, credit union boomer executives and volunteers are slow to integrate millennials into their leadership development programs and millennials are rarely seen in the boardroom. This must change!

Credit unions must make this transition of leadership style and understand that new CEOs will have different skill sets than their predecessors. The need for executive talent that combines the knowledge of the financial services generalist and the organizational specialist necessitates a multi-dimensional leader. The expertise required based upon current market conditions is more complex, and the competition for talent has increased resulting in the need for competitive compensation packages.

The responsibility to recruit, select and assimilate new CEOs will fall on a volunteer pool that is also aging. The value of energizing and educating the board of directors on the realities of CEO replacement cannot be understated. Ensure sticker shock is mitigated for the board members as they adjust compensation relative to market and develop understanding of CEO contracts now written with change of control clauses based upon the current merger trend. Million-dollar retirement plans and customized benefits are the norm, not to be gasped about. The board must consider its compensation philosophy and establish targeted baselines that reflect appropriate market positioning while remembering that their philosophy will impact human resource’s ability to recruit and retain talent. Is the target to be within the 50th percentile, the 75th percentile or subjectively established based upon individual skill set? 

The trends and components required for credit unions to recruit the best and brightest candidate in today’s market, include: 

Competitive base salary compensation as defined by peer, regions and localized market considerations. Base salary is not determined by the retiring CEO’s compensation but should be reflective of the current market conditions. A best practice for a high-performing board is to determine what the new CEO salary requirements will be and begin to adjust the retiring CEO compensation to that level. It is the right thing to do for the credit union and creates tremendous goodwill internally. 

It should be noted that an external candidate may require higher compensation to make the change and internal candidates will also need a base adjustment. The significance of the adjustment ranges from 15% to 30% based upon the credit union asset size. 

Performance driven incentives – The majority of credit unions have a board discretionary at-risk bonus plan, and most are transitioning to a performance metric system. According to the 2016 CUES Executive Compensation Survey, the majority of credit unions polled paid an incentive to their senior management team. The percentage fluctuated and was often driven by asset size. For those credit unions in the 75th percentile, the bonus payout for the CEO ranged from 15-23%.  

Comprehensive executive benefits including health, life, vision, dental, 401K, etc. Supplemental Executive Retirement Plans, SERPs, are considered both a retention tool and often required at time of hire. D. Hilton’s 2015 SERP Survey indicated that 38% of CEOs received a SERP within three years of hire and 72.5% of CEOs reported that the SERP is a meaningful retention tool.

Big challenges are on the horizon that require modernization of leadership transition practices throughout the credit union community. Activate the legacy of your existing senior leadership, executives and volunteers to create a win-win scenario for your institution’s future leaders, long-term organizational health and member value.