Compensation Trends

Is your credit union prepared for increased wave of industry retirements? Defining your institution’s compensation philosophy is key for forward-thinking depositories to ensure they remain competitive. In this article, we’ll explore a few of the latest trends and opportunities in executive compensation and benefits to help your credit union recruit and retain the right leaders.

1.    Begin With Your Strategic Goals in Mind Ensuring Your Philosophy & Policy Sync Up with Goals

If your credit union is looking to drive long-term, sustainable growth through its leadership team, then it’s imperative to ensure that the organization’s compensation philosophy and policy align with its strategic goals. Discussions regarding c-suite performance at the board level often uncover that a more sophisticated compensation philosophy is required to meet a cooperative’s strategic objectives.

Here are a few questions to ask to begin this conversation:

• Does the board expect the CEO to consistently deliver above average performance?  
• If so, is the compensation philosophy and policy also set to the above average range?
• Is such performance being incentivized in a way that resonates with all key stakeholders?

Remember, compensation is just one piece of the talent management puzzle. The approach you take can and will shape behavior throughout the organization. For example, a retention-focused approach emphasizes financial stability for your employees (e.g., higher base salaries and lower incentives) or a performance-based approach (e.g., lower base salaries and generous incentives) provides higher overall earning potential.

Depending on your strategic goals, choosing a single approach, a mix of several, or even individualizing plans for key leadership roles may make the most sense. Whatever the path forward, your compensation philosophy should also apply to the benefits side of the equation.

2.    Continuously Evaluate and Update Your Philosophy & Policy

A compensation philosophy that has been developed and implemented appropriately should stand the test of time. However, new industry solutions and/or trigger events might necessitate a review or even a revision due to a merger or a key leadership change. At these milestones, it’s helpful to ask: Are your current philosophy and practices enabling or impeding your strategy?

An independent, strategic advisor can assist you in defining or evaluating your compensation philosophy and policy. Compensation research, which is typically conducted every one or two years and should include multiple sources, can help a credit union better understand where they stand relative to the market. As publicly available data is not widespread and CEOs tend to talk to each other, it’s vital to integrate the latest research into a broader philosophical context and ensure it aligns with your strategy. That context should also include an intentional exploration of stakeholder objectives, including a CEO or other key leader’s desires.  

3.    Understand What Today’s Candidates Expect

Supplemental Executive Retirement Plans (SERPs) have become an expectation of c-suite candidates. Benefits like these are a key part of what attracts high performers to new opportunities or helps retain them.

The most common types of SERPs are 457(b) plans, 457 (f) plans, and Split-Dollar. Designed strategically, these can be effective retention and recruitment tools. To truly understand the pros and cons of the many options available, you may want to enlist the help of a benefit design specialist to create a new plan or enhance an existing one. From a recruitment standpoint, a generous plan that pays out in the long-term does not always retain the high-performing executive that is enticed with nearer-term payouts at another organization. Design specialists help reveal those nuances to ensure the plan has the intended effect.  

4.    Consider a Needs Based Approach to Benefit Plan Design

As we consult with credit union executives, it’s clear that one-size does not fit all in terms of executive benefits plans and that fully understanding the impact of potential SERP options is key. Blending traditional plan design concepts with present-day strategies, while considering the needs of the individual, is vital to meet the unique needs of each organization.

Executive benefits plans should complement existing incentive structures and take both individual and organizational objectives and time horizons into account. The financial impact of the plan, on both the credit union and the individual, should also be considered. This includes P&L, cash flow, executive taxation, potential excise tax to the credit union, and the long-term nature of cost recovery strategies.

5.    Remember, Philosophies & Plan Designs Can Be Highly Flexible

Keeping pace with the industry and remaining attractive to both current and future leaders, who are vital to the long-term success of any credit union, should begin with your institution’s strategy. Start by defining your objectives before you jump into evaluating specific plans.

Remember, compensation philosophies and executive benefits plans can be highly flexible in their design. Employers have the discretion to structure their philosophical approaches, policies and specific plans in ways that align with the organization’s goals and the needs of the executives.

Want to learn more about how to evaluate and enhance your executive compensation and benefits package? Register now for our upcoming webinar on November 20 at 11am CT to gain more insights and ask your questions during this educational session on Compensation Trends: What You Need to Know to Stay Competitive.

Peter Myers is SVP of CUESolutions provider DDJ Myers, an ALM First company. DDJ Myers has been working with credit unions in a professional development capacity since 1989. The company has won awards for our innovative and impactful work across the country with organizations of all shapes and sizes. As part of its CEO succession planning process, executive search work, or strategy development and deployment programs, DDJ Myers deploys its organization alignment assessment, an instrument that provides stakeholders actionable insights about the organization’s strategic alignment and optimal readiness for future actions. The OAA has collected thousands of responses, so the data can now be considered across a variety of factors, including organization level, departments, tenure, race/ethnicity, and gender.

“ALM First” is a brand name for a financial services business conducted by ALM First Group, LLC (“ALM First”) through its wholly owned subsidiaries: ALM First Financial Advisors, LLC (“ALM First Financial Advisors”); ALM First Advisors, LLC (“ALM First Advisors”); ALM First Analytics, LLC (“ALM First Analytics”) and ALM First Executive Benefits, LLC (“ALM First Executive Benefits”). Executive benefit services offered exclusively through ALM First Executive Benefits.

Investment advisory services are offered through ALM First Financial Advisors, an SEC registered investment adviser. Access to ALM First Financial Advisors is only available to clients pursuant to an Investment Advisory Agreement and acceptance of ALM First Financial Advisors’ Brochure.

The content in this message is provided for informational purposes and should not be relied upon as recommendations or financial planning advice. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.