How to Dial In on a Fair Executive Compensation Strategy


By Patsy Van Ouwerkerk, Mitchell, Stankovic & Associates

We have a lot of excellent talent in the credit union industry and should be proud of what today’s executives are accomplishing on behalf of their members. Many credit unions are making real differences in their communities and doing a lot of good, locally and globally.  

One of the most powerful tools a governing board can have to ensure the executive is focused on mission, vision and strategy is executive compensation. Executives and boards should both expect their compensation package to be fair, reasonable and motivating. Executives should never be held back by lackluster comp plans. In preparation for the discussion, both sides should do their homework!

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  1. Executives should be open and clear about what their priorities are, as should the board as to their priorities for the credit union. Build the compensation plan from there, meshing together the credit union’s mission, strategic direction and capacity with the executive’s personal objectives. Does that mean more bonus or salary? More time off? A company car?
  2. Form a compensation committee.
  3. Gather research on peer compensation plans from reliable resources, such as CUES or state credit union trade associations. This will give you a solid idea of the market and help the credit union document the decision it makes.
  4. Conduct customized compensation surveys at least every three years.
  5. Study Supplemental Executive Retirement Plans, like 457 B or F plans.
  6. Consider what similarly situated community banks are paying. You don’t want to do all the hard work of negotiating a comp plan, only to have your top talent snatched away.
  7. Document, document, document.

Unfortunately, quite often, credit union executive compensation is based on growth goals rather than the value returned to the members or employees. A while back, the California Department of Financial Institutions prepared a consolidated IRS 990 for the state’s credit unions, but that was no longer allowed by 2008 – on the cusp of the financial meltdown – and we had to file individually. This would disclose every state-chartered credit unions’ top executives’ compensation. The sharpest executives got out ahead of the potential news soundbite by explaining the value returned to individual members, small businesses and the communities the credit union served.  At that time some credit unions drafted talking points about the process used for determining executive compensation. At Travis Credit Union we were never contacted by the local media or members, like some credit unions, but we were prepared just in case. Without the context provided by credit unions, some of the figures could have caused a bit of sticker shock, but in the end, it was a nonevent for state charters.

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Not-for-profits can and should pay well, so long as they justify the value returned. We have to be competitive with for-profit entities, or we will not retain our rising and shining stars. But it’s a delicate balance to maintain the credit union philosophy, mission and vision. Boards should ensure they’re compensating their CEOs and other top executives in line with the credit union’s strategy and values. Consider metrics from member service surveys or return on equity as part of the goals for the CEO, rather than just asset, membership and loan growth goals. A balanced scorecard is always best.

When it comes to retirement packages, be sure to have that discussion with the board well in advance to ensure it’s fair to all parties and adjustments can be made as needed. Fortunately, my board at Travis Credit Union recognized early on that my retirement income was just as important to me as my compensation while I was working. Working with a financial planner can help executives determine what it will take to retire in the lifestyle you want. Contribute the max on what you can, and if the credit union can’t offer as much as you’d like, you do have the option to do it on your own.

Women in particular are not receiving as much as they deserve in retirement for a variety of reasons, from time off for family that affected their career and compensation progress to lack of assertiveness or negotiation skills. While more credit union CEOs are women, most of them are at smaller credit unions with little capacity for retirement or other benefits. Additionally, executives often have to move to maintain a career trajectory, but women tend not to do so because of ties to the community, such as children’s schools or proximity to aging parents. Both men and women’s pay needs to be equitable and tied to credit union’s purpose and mission.

I was talking with my partner, Sue Mitchell, about the women’s pay issue recently. We both know retired credit union women who have it pretty rough – moving in with their children or returning to work. Pay inequity affects women at every stage of their lives, from single mothers to widows. In her recent article in CUES’ CU Management, Sue wrote that women represent 64% of the CEO and senior leaders in credit unions with less than $100 million in assets but only 13% of leadership teams at credit unions with more than $1 billion in assets. “Many of my female CEO colleagues spent years running smaller credit unions, and they have come up through the ranks to achieve the title,” she wrote. “However, their pay is set by asset size, and often their career moves have been slowed by an unwillingness to relocate or risk their security, primarily for their families. Plus, boards and recruiting firms consider the asset size of the credit union before giving candidates a chance to take a seat at the table during CEO searches and executive selections.”

It all adds up and affects their financial futures. When Mitchell, Stankovic & Associates consults on leadership transitions, we suggest a supplemental executive retirement/retention plan. New CEOs can often negotiate this, but when a CEO has been in place for years, it’s rarely revisited. That affects men and women. To retain talent and maintain a health and vibrant credit union system, we must dial into fair and modern executive compensation strategies.