Credit Union CEO Salaries: Wading into Turbulent Waters and Pulling the Board Members with Us

As the credit union industry changes rapidly and increases in complexity, board members need to make sure they are keeping up with industry trends and standards. If they don’t, they risk their credit union becoming irrelevant and disappearing. One area that this is increasingly a problem is CEO salaries. Board members are often out of step with industry norms and expectations on CEO salaries, and that gap could become a detriment to their credit union.

By Kevin Smith and Tim Harrington

Here’s the scene: a young, first-time CEO stepping up to her new job, accepting a lower than desired/expected base salary. She rationalizes this as okay because she is a first-time CEO and is very happy to have the shot at the leadership role. After a couple of years, and some dramatically positive results for the credit union, the new CEO asks the board to revisit the salary only to have the board shut her down or offer a token “bump” in salary that is not aligned with the competitive realities of the marketplace, and certainly not aligned with the bottom line value provided by the CEO. The frustrated CEO is looking for ways to communicate with the board and get the value aligned … but that’s not going well.

We’re seeing this enough to call it a pattern.

Credit Union CEO Salary Discussion

Credit Union CEO Salary Discussion

This isn’t just happening with new CEOs trying to elevate their base salary to industry standards, it is also happening with long-time CEOs who are frustrated watching their base salary continue to fall behind the market. We are often asked to weigh-in about credit union CEO salary issues, sometimes by the board, sometimes by the CEO. To be clear, at TEAM Resources, we are NOT compensation experts. This does not fit into the consulting services we offer. But we are often pulled into this from a board/CEO communications and philosophical /theoretical/governance point of view. That’s the point of view we’ll present from here.

The reason we decided to write on this is that we have suddenly seen and uptick in these issues. CEOs and Boards at odds over what the CEO should be earning.

The CEO Pay Patterns

The general gist of all of the discussions is this: CEOs are concerned that their board of directors is out of touch with how to handle CEO pay. The boards are concerned that their CEO is expecting too much in salary or other compensation and is not appreciative of the board’s effort to compensate them fairly. Beyond that, the conversation takes a few somewhat nuanced but predictable patterns.

In each recent situation we have encountered, the CEO has made the following clear: They are thrilled to have the position. They are loyal to the credit union and don’t want to move. But they hit this compensation wall regularly enough that they are likely to seek another position.

There are a number of factors that regularly show up for this, sometimes in combinations:

  • The CEO is aware of the increasing complexity of the credit union and demands on the CEO. Technology, competitive and regulatory demands have all ratcheted-up in the last several years.
  • The board has typically given the CEO a certain annual increase that coincides with the annual increase given to the staff.
  • The CEO is aware – from peers, on-line CEO forums and trade-group salary surveys –what he or she should be earning, and comparing that to what they are currently earning.
  • They CEO is uncomfortable taking this information to the board…until the disparity becomes big enough that something must be done. By this time, there is also pent-up frustration.
  • Directors tend to support a base salary compensation calculation that reflects whatever industry they came from. If they work for the county, they propose a system like the county’s. If they came from the nearby manufacturing plant, they propose a system like the manufacturing plant’s. The problem is, few directors come from the financial services sector and are simply not aware how compensation is being calculated in THIS INDUSTRY.
  • Sometimes, the board is made up of members who never made a salary anywhere near what the new CEO is making and simply can’t see paying someone even more than they are already making.

Sadly, what has happened a few times is that the CEO reluctantly seeks employment elsewhere. And the board gets sticker-shock when they see what the new CEO candidates are expecting as their salary requirements.

What Should Board Members Do?

The simple answer is learn. It can be disorienting to see the salary expectations if your career background is very different from that of the credit union. But your role as a board member requires that you understand the industry. Comparing credit union salaries to your own background is often an apples-to-oranges comparison. If you can’t make that mental separation and consider your board service from the required fiduciary role, you are not the right board member for the credit union. It’s as simple as that.

Ask the right questions during the compensation process. Are you asking yourself, “I never made anywhere near that much money in a year. How can I vote for that?” or are you asking, “is this what’s right for our credit union, and our members?” Obviously, we’d like to see you asking the latter question.

Establish a Consistent System

What we still see is the board meeting toward the end of the year and saying, “Well, what do you think we should do about the CEO’s pay for the coming year?” This leads to arguments and heated discussions. It leads to inconsistency and arbitrary increases. We suggest you establish a Compensation Calculation System and put it into policy. This system could include third-party salary consultants, it could include references to the trade association salary surveys. Whatever you do, make sure you know what market salaries are doing, set up a system you can follow each year so that you don’t have to reinvent the process every year-end, and know what it will take to retain the talent you have.

Talent War for Leadership Positions

One of the greatest challenges in the next decade will be attracting and retaining talented people… and that starts with the CEO. There is a fierce competition for leadership talent within the financial services realm and certainly within the credit union movement. When you find a good CEO, do everything you can to retain him or her and reward them appropriately. If you don’t, well, what’s that old saying? “Penny wise and pound foolish.” You may have saved a few dollars by not keeping the current CEO appropriately paid. But then you will need to hire a new CEO, with all those costs and a new, higher salary. This is where that Sticker Shock comes in.

We believe that sometimes the board has the expectation that hiring a very young CEO is both a long-term plan (to avoid going through this process again any time soon) and a way to keep the salary lower. Youth is not a rationale for cost savings where the CEO is concerned.

There are plenty of ways to approach the compensation issue, with different methods of determining base salary incentives and bonus structure. Board awareness and interest, and leaving behind outmoded approaches and mindsets is needed in the modern arena. Taking an approach like this is also encouraging the best for the credit union’s sustainability. (I read a fantastic Filene.org report from 2012 by Mike Higgins Jr. “Improving Peer Group Analysis for Credit Unions” that tackles benchmarking in a way that promotes member value and not simply backward looking ‘profit.’ I recommend it highly. No, it’s not out of date.)

Perhaps we’ve thrown a live grenade into a conversation. It’s not the first time.

It may appear that we’ve come out unabashedly on the side of the CEOs here without “both-sidesing” the topic. We don’t think so. If you know us at all you know that we have spent our credit union careers  primarily educating, supporting, and researching the best interests of credit union volunteers. We believe in them … in you. This is part of that effort.

Certainly, there CAN be CEOs who aren’t earning what they’re getting or those who are asking for more than they’re worth. (Don’t we have that everywhere, in everything?) Don’t throw that at us, please. This requires a more nuanced examination. And no, we don’t think CEOs get to write their own ticket no matter the circumstances.

What we DO believe is that this is a significant issue in our industry and that board members need to make sure their heads are not in the sand. We DO believe that without some recognition of this as an issue, credit unions are going to suffer and some of them are going to lose great talent, or end up with leadership that is mediocre enough to make the credit union go away. That’s not hyperbole.

As always – we welcome your thoughts and comments.

Oh yeah … Happy Holidays!! We’re counting on 2021 being a helluva lot better. Aren’t you?

–  Tim and Kevin

CEO Pushback

The CEO’s Question Conundrum (Board Members – Pay Attention!)

A CEO’s Question Conundrum is the conflict a leader has when dealing with inquiries that come from the board. The board is the CEO’s boss, and can ask for just about any CU related business, yet sometimes the board gets too far into the weeds with information requests. They go beyond agreed upon boundaries, they can be significant distractions, AND they take up valuable executive time. Does the CEO push back?

By Kevin Smith and Tim Harrington

CEO Pushback

Does the CEO pushback on board requests?

The board can ask the CEO anything, right?

Let’s avoid all technicalities and cutesiness for this one. (ex. Anyone can ask anyone anything … technically speaking.) Let’s jump right to: Should the CEO answer any and all questions posed by the board? The TEAM Resources answer: NO. (*Even though I want, with all my heart, to say “it depends.” K. Smith.)

This topic is posed to us regularly. Not from CEOs who are being dodgy, or hiding things, or as lies of omission. Generally speaking this comes to us from earnest and hardworking CEOs who have a tremendous amount on their plates. They are pressed for time. They come to us when their boards are overwhelming them with requests for information that is operational, in the weeds, and far from strategic.

At TEAM Resources, we teach “strategic governance” that creates written policy boundaries between the operational and the strategic, between the board’s role and the CEO’s. By and large CU boards are making an effort to move towards the strategic, but operational views of board service linger in the DNA of the credit union movement.

There are a couple of things at stake here to address:

  1. A well-educated board is key to a board that can function at the strategic level. (That means asking a lot of questions to learn, does it not? Yes, ma’am it does.) But there should be a time and a place for the educational pieces. Taking the CEO’s valuable time to get to these can be a significant problem and a time drain.
    • This doesn’t necessarily just mean the CEO “delegates” the answering of board questions. That doesn’t necessarily solve the problem.
    • The board should have access to lots of data and information to be well-informed and to verify the information that the CEO provides. (Trust, but verify.)
  1. This is a delicate balance as directors shouldn’t be stifled in their information feedback systems, so they fulfill their fiduciary duty and understand what’s happening and the levels of risk in the credit union.

Can and Should the CEO Push Back?

If the board is asking for too much of the wrong kind of information, should the CEO push back? We believe that they should. This is terrifying advice for many CEOs. After all, the board is the CEO’s boss and this could create negative tension. The CEO can push back in a calculated and thoughtful way by asking their own questions about the information at stake. What do they need? And why? What will they do with that information?

It’s our sincere hope that the CEO isn’t terrified to push back on this information. In fact, with the right kinds of preparations, good strategic governance conditions among the board members, and the right kinds of communication between the board and CEO, it isn’t “push back” per se, but healthy navigation of the governance tightrope.

How Does this Work?

The board and CEO create the right conditions for healthy strategic governance by talking about what it means to be operational or “in the weeds” and what it means to be at the strategy level. These are discussions that result in clear governance policy. The board must come to an agreement among itself to know what kinds of information they need in order to do strategic work. We recommend that the board chair be the one who passes along requests from directors, after they have agreed (and voted, if necessary) about what kinds requests they will make. We don’t believe that individual directors should make requests to the CEO or staff members. (This undermines the chain of command and staff members may view this as de facto policy making.)

Information Filters for the CEO

  1. If the question is clearly strategic or aligns with the Key Strategic Drivers, easy: answer it.
  2. If they ask for a report that is new, not typical, or clearly operational, that’s easy too: bounce it back to the board.
  3. If they ask a question that is a clarification of something in the packet and it can easily be answered without research, the CEO may just want to answer it and be done with it.

However (#1), if the question seems purely operational, and NOT just a clarification of something in the packet, pass it back to the board. 

However (#2), if the question requires research or going back to another member of the management team, this requires some discernment. You may want to pass it back and ask if the entire board feels there’s value in getting this answer.

  1. If the answer is easy, and not leading down the slippery slope to operational digging, it is probably worth answering. If it is leading down the slippery slope. Use it as a teaching/discussion tool at the board.

A value in the director asking questions before the board meeting (as long as they are appropriate questions) is that the CEO can resolve the issue ahead of time and it doesn’t take up meeting time. So, the CEO must have some clarity on when to respond and when to bounce it back. When the board and the CEO work together to set up a healthy governance environment, there is no CEO’s Question Conundrum. 

Let us know what you think. Leave a comment below. We’d love to hear from you.

The CEO’s Annual Review in a Crisis

Credit union directors face a daunting challenge this year as you consider the annual review of your credit union’s CEO. Many or all of your standard metrics will need to be thrown out and replaced with criteria that is specific to the context of the year.

By Tim Harrington and Kevin Smith

CEO Annual Review

CEO Annual Review

One of the significant functions of the board of directors is to perform the annual review of your CEO. Many of you will face this soon, before the end of the year. So what emoji adequately captures your thoughts on getting ready for that? Confusion, fright, thoughtful, scared, face-palm, nausea, challenge? It’s all of the above, right?

The most likely scenario is that whatever you set up last year as part of the strategic plan for 2020 you need to fully or mostly throw aside and you will have to start over.

At TEAM Resources we have been working on this issue. We found it challenging as well. We have done research about what other industries are doing. Do you know what we found? Very little, many are stumped, and what advice IS out there is impossibly vague. Not helpful.

Consider this: Your CEO may have worked harder than ever before this year. In previous years, a less-than-stellar CEO in a good economy may have reached numbers that meant a very large bonus. This year, despite all of the hard work from a great leader, the credit union might lose some money. Thanks to his/her hard work, the credit union not only still exists, but the loss of money could have been a bloodbath, but it’s not. Is it fair to not reward this because the organization “lost” money? (We’re facing a Gilligan’s Island moment, believe it or not: “If not for the courage of the fearless crew, the Minnow would be lost, the Minnow would be lost.”)

At the same time, you will have to consider how much the credit union is struggling, or whether there have been layoffs or furloughs in the face of the pandemic. This may not be the time to be handing out bonuses despite how hard your CEO worked, and how much they rose to the leadership challenges throw their way.

So, What Annual Review Criteria Do You Look For This Year?

Now is the time to reflect on your values as a credit union and as a board. Review all that has happened. What were the notable things that happened that are in line with the clear values of the organization? Things like:

  • Members helped;
  • Staff health and wellbeing preserved … or notably inspired;
  • Difficult decisions made under duress that helped; or
  • Innovative products created;

Or … the opposite of all of this. What if the CEO didn’t rise to the crisis leadership challenge? This cannot be glossed over either. But judging that on outdated financial targets/projections is not the way to assess that.

Part of what you can do is let these values guide you and your discussion throughout the process. But what we want to caution you about is turning this review into a purely subjective response.

Considerations of the CEO Assessment     

Boards also need to consider are the implications to not getting this annual review right.

There are significant downsides of not being able to reward the efforts, recognize the dedication, loyalty & achievement. This is true in any year, but may be more so in a year of crisis.

How do you handle this? Like all good complex questions, the answer is “it depends.” You will need to ask your CEO for different kinds of information that aren’t on your standard metric reporting. Ask for measurements of things that did happen this year that were in line with your values and goals for the credit union.

Can you compare to expectations, or to peer? Well … maybe, but both of those options require some significant analysis of the context to make them realistic and valuable.

Want more detail on this topic?

We have created a webinar on this topic to dig in further. We invite you to have a look: https://forteamresources.com/webinars/ for more information.

or you can order it now for $199:

Practical Tasks that Achieve Strategic Benefits

Focus the Meeting Agenda & Board Packet on the Important

By Tim Harrington, CPA

At TEAM Resources, we believe the board packet and monthly board meeting agenda should be built around the credit union’s Purpose (Mission) and Key Strategies. This is board level stuff. As we look at the information generally provided to a board in the packet, most directors cannot easily discern what is important, such as what is supporting the Purpose and Key Strategies. Board packets generally contain a lot of information and detail that is operational in nature. The format of information presented to the board can make their job easier or harder. Out of not knowing exactly what the board really wants from the CEO and the  executive team, the CEO will usually give them a “shotgun approach.” That is very common for CEOs to do in the absence of board guidance.

Start everything with a reminder of “Why We Are Here”: The Mission (Purpose) and Key Strategic Drivers.

 

From the TEAM Resources approach, the general requirement for the board packet and meeting agenda are as follows:

1. Present your Mission and Key Strategic Drivers (KSDs) at the top of your board Agenda right under the word “Agenda.”

Don’t skip this step, it’s important for the meeting foundation.

2. Create an Instrument Panel of the Key Strategic Measures.

This will help keep the board (and your management team) discussing the big picture.

3. Limit reports to what is essential and what aligns with Purpose and Strategy:
  • CEO report
  • Financial Report
  • Strategic Report
  • Executive Staff reports

4. The Executive Staff Reports should align with Purpose and Strategy.
  • Start every staff report with a direct indication of how this report aligns and supports the Purpose and Key Strategic Drivers (KSDs). This compels the Executive Staff to recall what their big picture purpose is. It also guides the directors reading the report as to why this information is being shared with them.
  • Reduce executive staff reports to those things that tie to the Purpose, KSDs, a standard industry ratio, or those that regulation requires.
  • Keep the reports as a “brief” or a “summary” unless a high level of detail is required.
  • The CFO can do an in-depth financial analysis semi-annually (or at most quarterly). Otherwise the report is a brief or summary that aligns with strategy.
5. Deep Dives:

There is information that is helpful for the board to get a more comprehensive view of, but only periodically. These “Deep Dives” might take place the 1st and 2nd month of each quarter for example. They require a little extra meeting time as you go into depth. We would recommend scheduling a deep dive for the following items.

  • Asset Liability Management (ALM)
  • Investments
  • Branch activity
  • Commercial lending
  • Allowance for Loan Losses (ALL)
  • Enterprise Risk Management
  • Others as determined by the board
6. Remove from the board packet any info that does not tie to the Purpose and KSDs unless it is:
  • required by regulation;
  • a pressing urgent need;
  • something that is out of the ordinary and important;
  • something that is at variance with what was planned;
  • a policy update; or
  • is just needed due to common sense.

By using these ideas, the board will see and stay on the big picture. The more purely operations information the staff gives, the more directors feel the need to review and question it. By giving reports on the Purpose and Strategy, it helps the board stay on a level where they are really helpful to the organization.

Opportunities amidst crisis: Build a more Trusting Team

By Kevin Smith

Leaders can strengthen their teams and develop higher performance and more trust during these times of crisis. The “rules” are different and generally looser now as we all try to adapt. By showing staff that they have the leader’s full support, you can foster necessary innovation and raise the level of trust that will last long past the turmoil.

Building Trust During Crisis

Building Trust During Crisis

It’s easy to get caught up in the adrenaline and momentum of “putting out fires” during a crisis, for everyone involved. It’s also easy for leaders to get tunnel vision in this mode of operation, focusing on the details of the operational. It is important during this time to occasionally step back and reflect on the important in the big picture of things and not just the urgent.

One area of opportunity is in the development of trust among your teams.

Covid-19 has caused all of the rules to change in a very short amount of time. We’re all learning. We’re all adapting. And certainly, your staff is being challenged in many ways, perhaps in ways that are bringing them together to rely on each other to a much higher degree. That’s a small amount of silver-lining that is of value, but let’s look beyond that as well.

This crisis environment is forcing credit unions to examine their products and services to find new ways to serve members, for new ways to help them out, to provide value. Necessity is truly the mother of invention here. Many of the old ways of thinking have been pushed out the door as you figure out what to do.

What’s this got to do with teams and trust?

Everything.

Leaders – as your teams get creative and push innovation is ways that they haven’t before, consider these:

Tolerance for Mistakes – be as tolerant as possible of mistakes. Innovation under duress is unlikely to be flawless. Let your folks know that this is a time for learning and “failing forward.”

Freedom to make decisions/Latitude – make sure your folks understand that the goal is to accomplish the mission (rather than simply to do a job or to fulfill a list of duties). You probably have enough on your plate to deal with. Give your staff additional discretion about doing what needs to be done.

Allow for vulnerability – It’s hugely important to know if or where there are problem areas and things going awry. Do you know that your people are willing to talk about what’s not working without fear of retribution for being critical?  A front-line staff person makes themselves vulnerable in doing this. Supporting this from a leadership position will make sure that valuable information is free-flowing in a helpful way. Now is not the time for people to be afraid to report problems. Reward this communication. You will get the behavior that you reward.

Trust in a team, requires constant care and feeding. Following these steps will help you to promote trust amongst your staff. This in turn will raise performance. In ordinary times, this kind of psychological safely takes a long time to build. A crisis suspends many rules as we know, and allows for a quicker pivot point, a place to build your team and your culture quickly. Following the steps above will help you adapt to your current needs, and also serve the organization long into the future with stronger bonds between people.

Monitoring Whether the Current Economic Uncertainty is Bringing Greater Risk to Your Loan Portfolio

Monitoring Whether the Current Economic Uncertainty is Bringing Greater Risk to Your Loan Portfolio

 By Tim Harrington

Economic uncertainty makes assessing risk in a credit union’s portfolio that much more difficult. Credit unions can take advantage of  existing reports to tease out signals and indicators to help determine what’s happening within their sphere.

Ask an economist if the U.S. economy is going to stay strong or slip into a recession and they will probably just give you a perplexed look. Why? The economic signals are terribly mixed. Traditional indicators of health or recession are occurring simultaneously, and no one knows where things are going from here.

But as a board and management team, there are a variety of internal reports that can give you an idea whether your credit union’s risks are increasing or decreasing. The traditional measures of credit risk, namely delinquency and charge-offs, will not tell you that your risks are changing. These are “lagging indicators.” These tell you of a problem in the past, not that a problem may be starting to happen.

Read more

Three Kinds of Lip Service That are Hurting Your Culture

Three Kinds of Lip Service That are Hurting Your Culture

By Kevin Smith

Three Kinds of Lip Service That Are Hurting Your Culture

Lip Service

Lip Service

Lip Service

 

 

 

 

 

 

 

 

You know about Lip Service, right? (hint: it’s not just a rockin’ song by Elvis Costello.) This is when you talk about something but your actions don’t back up what your lips are saying. It’s a terrible feature in organizational cultures and it can devastate trust and morale. I see it all the time. But not all lip service is created equally. I see three forms of it regularly and each has its own kind of negative effect on an organization. Read more

Strategic Planning and the Worst Metaphors I can Come Up With

Strategic Planning and the Worst Metaphors I can Come Up With: Hunting Baby Elephants and Killing Sacred Cows

by Kevin Smith

I recently had the pleasure of spending several days with a credit union working with their board on strategic governance, then with the board and senior team together on strategic planning. This work is really fulfilling, and rewarding. Hopefully the credit unions get half as much out of it as I do. Part of the fun of doing this really difficult work is establishing rapport between myself and the group I’m with, and helping them increase the level of rapport and critical dynamic among the participants in the session.

Inevitably throughout the day we end up creating inside jokes, a shorthand of references that only we understand. In this particular session, I found myself unnerved at one point because in the same sentence we were talking about killing baby elephants and hunting down sacred cows. Such violent language and imagery! How did we end up here?! These are not my favorite kinds of inside jokes. Alas, here we were … and I’m trying to salvage the value of these metaphors for the benefit they are supposed to bring. Read more

What Board Meetings Should Accomplish

Credit union board members should keep a clear focus on what they should accomplish in each meeting. To be efficient directors can try to follow this rule of thirds: Strategic Discussion, Reporting and Education. It will keep the focus and improve performance.

by Tim Harrington & Kevin Smith

As we travel around the country working with credit unions, we’re so fortunate to meet great people who are part of the credit union movement. We get to interact with those who have a great deal of experience, people who are happy to share what they’ve learned over the years. We’ve had the opportunity to learn some great practices (and a little bit of nonsense) over the years which we always try to pass along (usually not the nonsense).

Read more

Board Governance Video Series

Kevin Smith guides you through some of the nuances of board governance through these short videos. These are released … well … regularly, but not on a schedule. He talks about issues that he sees regularly as he works with credit unions across the country. If you’re looking for guidance on a specific topic, shoot him an email to suggest it!

For longer topics, check out what he and Tim have to say on the TR Blog.

(most recent videos at the top)

Episode #8: How Are You Adapting?



Looking for the Doorways to Success: Financial Mastery Series?
Click Here. 

This series is video of Tim training about credit union financials and how to read them. It’s a great program. Check it out.


Episode #7: The Substitute’s Dilemma


Episode #6: Groupthink!


Episode #5: Do You Have an E.L.M.O. Card?


Episode #4: Should Your CEO Be on the Board?



Episode #3: (Intentional) Board Team Development



Episode #2: Board Education



Episode #1: Governance Outside of the Bowls



Questions? For more information or to schedule a training, contact us here.

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