What are the pros and cons of paying directors and how can writing out your philosophy help?
To attract and retain talent that can carry out a member-focused mission, top credit unions have been developing more robust and sophisticated executive compensation packages. For many credit unions, the next frontier is compensation for the board of directors. Discussing director compensation can quickly become contentious, as it concerns some of the fundamental values of credit unions. Yet, despite any philosophical controversy, 71% of the largest credit unions that can compensate their directors are doing so.
If your credit union is interested in creating a compensation package or understanding further how your current package compares to market, the first step is creating a compensation philosophy. To successfully do so, the two main questions to ask include:
1) With whom does your credit union compete for talent (e.g., just credit unions or credit unions and banks)?
2) How does your credit union want to compare (lag, meet, or lead the market)?
While a compensation philosophy for a board of directors may differ from a compensation philosophy for employees, many companies choose to have alignment. The primary difference in board compensation relative to employee compensation is that it is not based on a pay-for-performance philosophy. The board should not be incented based on financial metrics. Instead, the board should be focused on fulfilling its oversight role, and not meeting financial or business targets.
This whitepaper discusses the pros and cons of compensating directors, and provides a link to additional information about developing a compensation philosophy.