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Learn the Numbers so Well that you Can Spend Less Time with Them

Credit union board members have to have a very good handle on the organization’s financials. This is often so time consuming that it takes away from valuable time that could be spent on important strategic initiatives/goals. Learning the numbers well enough to get past this is a valuable place that many take years to reach … while others may never get there at all. This holds the credit union back.  

By Kevin Smith

We in the credit union industry do love our ratios, don’t we? It’s a way to make better sense of raw numbers and an attempt to get closer to an “apples to apples” comparison that is of value for strategic or oversight purposes. Now we need to learn and know this stuff well enough that we can spend dramatically less time with it. Sounds a bit contradictory, right?

Problem: What we’ve seen across the country is that new, and relatively new, directors don’t have a reasonable handle on the ratios and financials for a significant amount of time. We measure that in years often, not weeks or even months. (The dirty little secret is that there are also long serving directors who don’t know this stuff well enough.) I remember way back when I joined the CU movement at CUNA, learning them myself. It took some time for this English major. I don’t hold this against the volunteers, but it has very real ramifications for many credit unions.

Context: Too often, board meetings are spending valuable time on reviewing the financials. This is a problem for a variety of reasons. For one, this is backwards-facing information. The financials are looking in the rear-view mirror and asking “how did we do?” This is necessary and is, of course, part of the fiduciary duty of the directors to keep track of. But what I see and hear is that this is requiring CEOs, CFOs and others to spend inordinate amounts of time reviewing these numbers, explaining them, teaching about them … mostly during the board meetings.

Also, board members – stop and think about this: How much time is your CEO, CFO or Chief-Whomever, spending preparing for these meetings? How much time are they spending teaching these things to directors. Remember this when it’s salary review time. You’re having your highest paid executives teach remedial financials to the board. Couldn’t this time be better spent?

Another significant angle to this is the fact that this is all valuable board meeting time that could be focused on strategic items, and planning for the beautiful future, for the things that you’d like to get to, the members you’d like to help. Let’s face it; things don’t typically happen very quickly in the credit union world. Can this be part of the reason why? We’re sucking our valuable time into a less valuable part of the agenda? Nobody wants to have 6-hour board meetings every month, right? The reality is that the board meets for a couple of hours a month and that limited resource should be used very wisely.

One more thing to consider here: Perhaps you want to chime in and tell me that you DON’T, in fact, spend that much time learning financials during the board meeting, and that your crew doesn’t have to ask much about these and that they DO know the ratios. Let me ask again – are you sure there’s true understanding among the board? Or are some directors simply nodding and smiling because they don’t want to admit what they’re not sure about? There are plenty of credit union executives who confide in us, off the record, that their directors are struggling with their understanding.

Solution: Now we’re back to my weird premise. The responsibility for directors to learn the ratios and financials SOOOO well, that they don’t need to spend much time with them. This means treating this like the skill that it is, and the learning curve that is honest and real. It means getting over our own egos and putting in the work. Admitting what we do and don’t know and solving that in a way that doesn’t take up others’ valuable time.

Think back to when you were first learning a sport, an instrument, a language, driving (driving is a really good one). Heck, this might even be back to basic addition. There was practice that you did, over and over in order to master the rudiments. Now you have them so locked in that you can do a lot without much effort and you get a lot of information in the blink of an eye. Heuristics – “a mental shortcut that allows an individual to make a decision, pass judgment, or solve a problem quickly and with minimal mental effort.” 

My goal with credit union financials, from a board member’s perspective, is to be able to squint at a chart and be able to get as much information as I need in order to know whether I need to start asking more questions.

Board members – you have a duty. You are serving the credit union (as a volunteer, I know), and this requires work. It doesn’t have to be onerous. In fact, I want to tell you that making sure you know the ratios well enough to spend less time with them, is an investment that yields great dividends. It saves time, focuses efforts towards the strategic, aka the more rewarding work.

Shameless plug TEAM Resources offers resources for learning this information. Most recently we build the Doorways to Success Series: Financial Mastery. See more about it here. Board members love it, but so do CEOs and CFOs who now have time for important work since their boards have adopted it.

Thanks for listening.
Have a nice day.

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.

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