Whether Directors Should Be Paid Stirs Fierce Arguments on Either Side

WASHINGTON – With the increased fervor to meet members’ growing and complex needs and the uptick in the number of charter conversions, credit union directors are more vital than ever. Some say credit unions should have the option to pay these key players, while others think that crosses a line that shouldn’t be crossed. There are currently 11 states that allow state chartered credit unions to pay all of their directors – California, Georgia, Idaho, Indiana, Maryland, Minnesota, New Jersey, Pennsylvania, Rhode Island, Texas and Wisconsin. At the federal level, credit unions can only compensate one director “as an officer of the board.” Most credit union directors are unpaid compared to bank directors, who typically earn between $2,500 and $50,000 annually not including allowances for travel and training expenses, which are typical in the movement, according to CU Financial Services, a growth and merger consulting firm. Only 16% of credit unions pay at least one director according to CUES’ Credit Union Board Practices: A Peer Study (2000), the last year data was collected. A per diem honorarium was the most common form of cash compensation for directors, with the average figure being $3,370 annually, CUES found. Industry wide, compensation ranged between $200 and $15,600 annually per director. Non-cash compensation is more common and often came in the form of training, meals, computers and credit union logo clothing. “Mixed emotions,” is how Ed Blommel, chairman emeritus of the National Association of Credit Union Chairmen described his position on the compensation issue. Blommel left the post in October after serving four years as chairman of the 202-member group. He is also chairman of Wright-Patt Credit Union in Fairborn, Ohio. “The volunteerism in me tells me there should not be compensation because we came on as volunteers,” Blommel said. “Then there’s a part of me that feels volunteers are not appreciated until it’s time to fight for the (tax-exemption) issue. When the taxation does hit, there should be some consideration made towards directors being paid especially from the larger credit unions.” Incidentally, members of NACUC’s Board receive $20 per meeting, which “doesn’t cover mileage.” Hard pressed to give a suggested range, Blommel said on the low end, $200 per month “would be a good starting place.” “I don’t believe in a golden parachute,” he explained. “Remuneration is not an issue to someone who isn’t doing their job, adding a credit union’s CAMEL rating and asset size should also be considered.” At the critical crossroad of the compensation debate is the threat of banking groups ready to pounce on any attempt by the industry to implement a policy that would expand a payment system to all state and federal credit unions, the purists argue. Any move in this direction would negate the premise that credit unions are not-for-profit entities and give credence to banking groups’ ongoing effort to revoke the tax-exemption status. “We work for the members, any compensation opens up conflicts of interests of who we’re really serving,” said J. Wesley Bone, chairman of First Financial Federal Credit Union of Maryland. “Volunteers are an important part of the movement and they need to be seen and heard particularly on the national level.” Yet, the evolutionists contend that the complexities of running a credit union have increased and the board “has the personal liability, be it member lawsuits or management neglectful duty” in its hands, as one board chairman described it. Still, potential volunteers know upfront the responsibilities that await them before board elections. If time constraints are an issue or more importantly if “getting paid” is the impetus for becoming a director, then motives are suspiciously questioned. Bucky Sebastian, president/CEO of GTE Federal Credit Union in Tampa, Fla., believes the decision should be left up to the respective credit unions. “One thing that really distresses me the most is when people think they have the answers for everyone else,” Sebastian said. “Credit unions are member-owned, democratically-run. If a credit union wants to compensate its directors, who am I to say that’s wrong?” To the argument volunteerism is “the core of a credit union’s essence,” Sebastian questioned the validity of that belief. “The core attribute of a credit union is that it is democratically controlled,” he explained. “I’m not so sure that volunteerism is at the essence.” He compared the compensation debate to the private insurance fund issue raised last year. “Like private insurance, compensation should be an individual choice,” Sebastian said. “With all the concerns going on, credit unions should not get hung up on peripheral issues. No one viewpoint should ever be imposed.” Aberdeen Proving Ground Federal Credit Union (APGFCU) in Aberdeen, Md. has expanded considerably since chartering in 1938 to serve employees and families of the Army’s oldest ordnance design and testing facility. The credit union has invested heavily in information technology over the years and expanded to several counties making it one of the largest in the state with 75,575 members and more than $500 million in assets. As chairman of APGFCU for 12 years and a volunteer for 30 years, David Gilbert has been an eyewitness to the growth. Still, some things should never change. “As credit unions have grown more complex, we have introduced paid professional staff and credit unions tend to pay really good salaries,” said Gilbert, who also serves as one of two volunteer directors at NAFCU. “As the credit union grows, the board moves back to a policy role.” Gilbert said APGFCU’s directors are reimbursed for out-of-pocket costs to attend meetings and such but that’s where he draws the line. While he can understand the compensation argument because a director can easily attend up to 30 meetings each year, some lasting between two and three hours, he said there are other ways to woo volunteers. “Suggest small, core projects,” said Gilbert who has conducted “Attracting the Best of the Best” seminars for state leagues. Gilbert asked an attorney to help with a request for proposal for audit firms to conduct the credit union’s annual audit. The attorney worked closely with APGFCU’s supervisory committee over a two-month period and later Gilbert asked him about his experience working in a credit union setting. “It was a interesting experience, unlike anything he had come across,” Gilbert said. “(The attorney) said he had never seen the genuine hard work and commitment to an organization that the committee had exhibited.” As a result, the attorney agreed to become an alternative member of APGFCU’s supervisory committee. “We’re constantly fighting to protect not-for-profit status,” Gilbert said. “I’m convinced that if we start compensating directors, it would violate one of the tenets credit unions were founded on.” For some the mere topic of compensation gets the blood boiling. Leroy Nesbit, president of the Council of GM Credit Unions and a director at Dort Federal Credit Union in Dort, Mich. for 29 years, echoes Gilbert’s concern about the loss of the “people helping people” philosophy. “What is the definition of a volunteer?” Nesbit asked. “When you volunteer, you’re doing so of your own volition and you should not expect any remuneration.” Like most critics, Nesbit is concerned that compensation “puts credit unions on the flight path of legislators and their banking influence.” “And, they would be absolutely right – if it looks like a duck, quacks like a duck, you know the rest.” A combination of factors back compensating directors at Canadian credit unions, the most important being increased scrutiny of operations and legal accountability, industry watchers agree. Indeed, Canadian credit unions have the flexibility to pay all their directors with the hopes of “attracting the best people with the right skills.” Depending on the credit union’s size, most directors here generally receive an honorarium between $3,000 and $5,000 and meeting fees between $150 and $250. At Niagara Credit Union, a $1.6 billion in assets institution in St. Catherine, Ontario, the 13 directors here receive an annual retainer that is paid quarterly and a monthly meeting stipend said Sheryl Wherry, vice president of corporate governance and services. The chairman gets a higher per diem. “The days of cooperative movement volunteerism are long gone,” Wherry said. “It shouldn’t be a catalyst but it’s only fair to compensate directors (especially) given the oversight responsibility of a large credit union.” Niagara has an extensive question and scoring process for finding the right directors including restricting service to three terms and capping the age limit for potential candidates at age 69. “When someone has retired, there is a tendency to be out of awareness of what’s going on and unfortunately, it can be more difficult to grapple the issues when one gets older,” Wherry said. Since most board members are “business people in their own right, some are being pulled away from their employers and their businesses” so “it would be difficult to expect them to put in the time without being compensated.” The notion that credit union volunteers are looped in the same category as service organizations is a myth, said Anthea Radford, president of Arjane Governance Group, a corporate governance consulting service. “As difficult as some may find it to believe, directors are not doing a good turn for the community,” Radford said. “They have a specific, legal responsibility to their members and in order to keep pace with the numerous changes in operations and governance, we have to get out of some of the old ways of doing things.” Radford emphasized while compensation also places a greater demand on directors’ performance standards, it should not be tied to a credit union’s overall performance. “Most credit unions are grappling with the difference between them and banks but that’s a large issue that has nothing to do with compensating directors,” Radford said. “Credit union CEOs will think nothing of paying their front-desk receptionist. A director’s job is much more complex.” [email protected]