Overcome the CEO Compensation Data Lag

Today’s credit unions must navigate overwhelming competition for talent, a complicated economy, a pandemic that just won’t end, and industry change due to mergers. To succeed in these complex times, they need a top-notch CEO. In all, 2022 is a great year for credit union boards to be reviewing how they compensate the credit union’s top leader.

Overcoming the Compensation Data Lag

Typically, compensation surveys and information reported to the government are good sources of data about base pay ranges for credit union CEOs. However, in 2022, the data available and the process credit unions need to use to interpret it is somewhat unusual.

Much of the currently available compensation survey data is from 2019, which means calculations for comparisons and the bottom-line value of compensation packages reflects pre-pandemic information. Data from the IRS Form 990 filings of state-chartered credit unions—including total compensation, base salary, deferred and other compensation—will be of a similar age. Other, more recent market surveys likely suffer from limited sample sizes and geographic concentration. Plus, they may be skewed due to the huge amount of federal stimulus that boosted assets that might have been used as a performance metric for executive compensation.

Boards must always be diligent in their efforts to effectively compensate their CEOs, and this is especially true now. Here are a few tips to help guide you and your board through this tumultuous time and into the long term:

1. Define the credit union’s strategic objectives. Establish a long-term asset growth rate for your executive compensation package that maintains a given percentage of capital. Base CEO compensation in part on delivering outstanding member satisfaction.
2. Establish a philosophical framework to drive your compensation structure and levels. Compensation should be aligned with behavior. People do what you pay them to do. Make sure desired behaviors and compensation incentives are aligned.
3. Determine how and how much you want to reward for “performance” and what “performance” entails. Consider adjusting benchmarks to include “human” performance qualities that work in conjunction with metrics.
4. Adjust the plan if there is a material change in the environment. During volatile periods, it may make sense to incent your managers for very different behavior than you might in normal times. For example, during the COVID-19 stimulus period, the goal at many credit unions shifted from “grow assets” to “maintain capital.”
5. Use sound advisors who can substantiate their guidance with hard data and insight to help you better assess the “unknown unknowns” about compensation, incentive plans and human behavior. These same advisors can help you understand executive compensation instruments, such as credit union-owned life insurance, annuities and non-qualified benefit programs.

Flynt Gallagher is president of Newcleus Compensation Advisors and John Moreno is managing partner of Newcleus Credit Union Advisors, a CUES Supplier member based in Newtown, Pennsylvania. Newcleus helps credit unions retain highly talented staff members and ensure organizational success by providing administrative expertise plus cutting-edge tools to maintain up-to-date and competitive executive compensation packages. The company services over 45,000 policies and non-qualified plans for more than 750 clients throughout the U.S. with a total of $12 billion in assets under administration. Reach Gallagher and Moreno at 267.291.2130 or info@newcleus.com.