Compensation
Credit union CEO compensation rose at a faster pace than chief executive pay at other industries last year. The gains also outpaced inflation.
Specifically, average CEO salary plus bonus increased 8.59 percent, according to the 2007 CUES Executive Compensation Survey.
So what? Based on performance, I say it’s well deserved.
The International Monetary Fund estimates that the financial turmoil set off by the collapse of the mortgage market could total nearly $1 trillion. Yet, CEOs of the firms most responsible for causing the crisis collected hundreds of millions of dollars in pay last year. Further reform is needed to protect companies and their investors, or the villagers are going to storm the castle.
Compare that scene to credit unions. Sure, we’ve seen some losses — industry attorney Joe Melchione called those responsible for credit unions liquidated in the past year “drunk behind the wheel”, and that’s a good description. A few of us got caught up in the lure of easy money and quick loan portfolio gains.
But only a few.
Credit union executives, by and large, refrained from get-rich-quick temptations, sticking with what they know: safe and strong, prudent and thrifty. Forget the debate of profit vs. non-profit, this is about performance. Credit unions approached the mortgage boom with restraint and wisdom, and now they, and their more than 87 million members, are glad they did.
Bravo! Credit union executives deserve that raise in my book.
NCUA Vice Chairman Rodney Hood agrees. He told NAFCU conference goers he thinks credit union executives deserve another zero on the end of their salaries. Before chuckling and rolling your eyes, consider $2 million wouldn’t put them on par with S&P 500 execs, who rake in an average of $14.2 million each.
Credit union executives aren’t running quaint mom and pop shops out of shoeboxes anymore. They’re running complex institutions and deserve to be compensated thusly, Hood said.
The CUES survey compares credit union compensation practices with data from four independent banking surveys. As usual, banking salaries are higher, especially when bonus pay is compared, with the exception of the under $250 million category, which is tough to compare apples to apples.
But the gap is shrinking. In this year’s survey, the median base salaries of CEOs at credit unions of $250 million or more in assets actually outpaced their banker peers; but, when bonus pay is factored in, bankers are more highly paid.
Likewise, in the $250 to $499 million range, credit union CEOs earned $225,000 in base plus bonus pay, compared to $240,600 for banking executives. That disparity is even higher in the $1 billion and up range: $420,056 compared to $570,600.
Here’s where the difference lies: CEOs of banks in the survey’s highest asset range receive 73.1 percent bonuses, as a percentage of their base pay, while credit union executives receive only 23.2 percent.
Clearly, credit unions understand the need to be more competitive when it comes to attracting and retaining talented management teams. And, CU leaders have their work cut out for them when it comes to achieving the necessary results in today’s tough marketplace.
Susan Mitchell of O’Rourke, Mitchell and Associates said recently that boards are experiencing ’sticker shock’ when it comes time to negotiate compensation for a new CEO. “It’s not that they aren’t willing, it’s just current tenure of retiring execs has naturally resulted in lower pay than what competitive market conditions require today,” she said.
Mitchell cautioned further that, “Resentment can happen when the retiring CEO learns of the new package. This happens when the retiring CEO is worried about their own lifestyle after retirement, or feels concern for the organization they have built. There also can be a sense of disappointment that their efforts were not recognized or rewarded.”
Could credit unions learn a thing or two from their banker brethren about bonus compensation, which is typically performance based? It would certainly help the cooperative defend compensation to inquiring members, as well as grumbling retired CEOs. And, your Gen X and younger leaders probably won’t blink an eye at the concept of performance based pay—just make sure you’re willing to make good if your new exec achieves or exceed goals.
Effective long-and short- term incentives are an effective means of retaining senior executives who are in their peak years of performance, allowing credit unions to “bridge top executives to retirement”.