Should Paid Directors Be Held to a Higher Standard?
More credit union boards are moving to or considering payment for service. This means that boards need to reconsider their standards of engagement and director performance. It will be important for boards making this change to re-calibrate expectations.
By Kevin Smith
Ten to fifteen years ago there were two topics sure to get credit union board members riled up and talkative at credit union conferences and training: term limits and paid directors. But I have to say that these discussions instigate far fewer sparks and consternation than they used to. When I was facilitating board roundtable discussions, I used to love to throw those two hand grenade topics and run to watch the smoke fly. It’s generally not a bad thing when people are passionate about things and care about them enough to get animated in their discussion.
Recently, I’ve been involved with a few discussions about the payment of directors. While the overall idea of it has become less polarizing, what I’m noticing is that, as usual, the devil is in the details, and there are quite a few nuances to the application of this idea that can still heat up the room. Primarily, the issue is whether paid directors should be held to a higher standard.
Some of the circumstances to consider:
How large is the payment? For some it’s a nominal stipend. A couple thousand dollars a year. For others it’s low to mid five figures. For some this difference matters a great deal when talking about raised expectations for the role.
Does paying directors have regulatory implications? Does this affect how lawmakers perceive who credit unions are in the market? Lobbyist for our industry are careful to dance around this one, as one of their primary talking points when hiking the hill is the not-for-profit model run by volunteer directors.
One director told me flat out – “we’ve been doing a lot of work for a lot of years already. We’re just now getting paid for that work. So, no, the expectations should go up. I’m already earning that money.”
Naturally there are those who take the opposite stance. The addition of remuneration to a formerly volunteer position changes the tone of the position dramatically.
What’s the Goal
There are also nuances to how boards come to the decision to pay their director members. (And sometimes there are differences within the same board as to these reasons!) Payment can simply be an acknowledgement of the work. But regularly this discussion is about efforts to recruit candidates (and higher quality ones) for a job that has become far more complex and time consuming. We hear a lot of worries in the industry about how difficult it can be to get new, and younger directors to join the movement as part of the board. Payment is the carrot/incentive to make this worthwhile to candidates.
My View
Over the years, I’ve softened to the idea of paying directors. I know just how much work there is and how important it is to have the right people in those seats. With the right understanding of the membership and evolved strategic thinking skills. A salary or stipend just might help in recruiting. But then I worry that people are attracted to the role for the dollars rather than the mission. At the basic level, the mission and purpose should be what attracts the potential board member. This is what we’ve done for a century now – get people to drink the credit union Kool-Aid and see what people-helping-people can do for the world.
So, they paycheck doesn’t change the job, but it does change the perception of it. Because there is such a long history of volunteer board members in this movement, I do believe that the just the perceptual change of adding pay is significant, to the members, the regulators, the general public, etc. And that change suggests to me that there also needs to be change in the performance of the board. I think that is a reasonable expectation as a sharp contrast to the history of the voluntary position. We hope that increased costs to the credit union come with increased value.
Be Careful What You Wish For
There are other sticky wickets to watch out for in this territory. Plenty of credit union boards count on (i.e. hope) that tenured directors will self-select out of their roles when they are no longer “high performing.” (This tees up that other incendiary topic of term limits.) Of course, this doesn’t happen nearly enough. As Tim Harrington says, “If you think some of your directors are sticking around too long, start paying them and see what happens!”
Our Vantage Point
Tim and I encourage already boards to raise their standards and performance expectations all the time, whether there’s pay or not. So maybe we’re not the two people to weigh in on whether to do it. But we do believe that it changes perceptions. There is a lot to talk through and consider on the issue. Don’t take it lightly. It can be awfully easy to agree to a new paycheck for work you’re already doing. Do it of the right reasons.
