Deciding What a CU CEO Should Be Paid Not Easy

Alot of important points get overlooked when people start talking about other people’s compensation. Very quickly discussions get around to comparisons with a person’s own paycheck. “Why should he (or she) make so much more than me?” Nor does it take long for those in such conversations to talk as though they have somehow become qualified compensation experts. “No credit union CEO is ever worth that much money.” The $1.6 million compensation earned by Portland Teachers Credit Union CEO Cliff Dias last year started tongues wagging throughout the credit union industry almost immediately after it was first reported in this publication. What has been generally overlooked is the fact that Dias never came close to that total until last year. It took him a number of years of extraordinary effort to fix several major problems he inherited as the new CEO. Like getting the credit union financials shaped up and on the right track. Like growing the credit union not only in assets, but especially in member value. Like establishing a strategic direction and assembling a staff capable of carrying it out. Early on, Dias’ board set stretch goals for him and attached monetary rewards to them if they were achieved, which he did. That put more dollars in the Dias pay envelope. Had he not made them there would have been no bonus money and probably only a cost of living increase in his basic salary level. As an aside, I am familiar with more than one credit union CEO who made and surpassed some very difficult board-set goals. At that point their boards decided to take another look at the additional money this would mean for the CEO. They concluded after the fact that it was too much. They asked the CEO to rescind the bonus agreement. The net result was the CEO left. Then there is the matter of a retirement package for the CEO. Dias made no secret that he wanted to retire at age 55 and return to his native Hawaii. Like many credit union CEOs around the country today, Dias and his board realized they had to play catch up in order to rectify a seriously under funded pension plan before he said Aloha. As part of the catch up process, the board took advantage of something the government allows, namely, structured contributions to beef up Dias’ retirement package during the remaining years before the CEO’s retirement date. Now do the arithmetic. A good basic salary that sees healthy annual merit increases as the credit union moves forward and members get better service. An ambitious bonus plan that pays off generous rewards as goals mutually agreed upon by the CEO and his board are met, and in fact frequently exceeded. And larger than normal sums of money earmarked for a pension. At least in the case of Dias, it all adds up to a $1.6 annual compensation package for 2003. Will it go even higher in 2004? It could. Or it could drop, even significantly. It all depends. It is impossible for outsiders to determine exactly what a fair compensation package is for the CEOs of credit unions today. They are all so different. But what about the many surveys of credit union CEOs? Many are completely worthless. One doesn’t even make a clear distinction between full and part time CEOs. Another doesn’t take into consideration the tremendous differences of complexity between credit unions. Even the good ones, like the survey that has been conducted annually by the Credit Union Executives Society (CUES) for almost 30 years, have built-in weakness. Boards use it as gospel rather than use it strictly as a guide as intended. Often these surveys don’t get responses from CEOs making a lot of money because they want to keep it a secret. Or from those who are grossly underpaid because they are embarrassed. So the survey results are skewed toward the mud in the middle. Just comparing CEOs of similar type and size credit unions doesn’t cut it. This data alone doesn’t tell an observer how far and how fast the credit union has come under the current CEO. Nor does it reflect member satisfaction. Nor does it take into account what other hats the CEO may be wearing. For example, some credit unions have very successful CUSOs, sometimes more than one. The credit union CEO is usually the CEO of these separate, for-profit member service entities in addition to managing his or her credit union. Compensation should reflect these additional responsibilities. One of the biggest obstacles to credit union CEOs getting paid what they are worth is the inability of many of those who determine the CEOs pay not to bring their own compensation into the decision making matrix. A personal experience example: When I was CEO of CUES, my board would constantly complain to me that their boards were holding them back compensation wise for no other reason than they did not see why the CU CEO should make more than they did. Or more than the superintendent of schools. Or more than the governor of the state. Or more than the base commander. They lamented as to why their boards couldn’t treat them like they treated me, as someone in a completely different job with completely different compensation criteria. It didn’t bother them, they used to say, that I made more than most of them. But it really did. A lot. Even though they were all full-time CU CEOs. In regard to a credit union CEO’s total compensation package, how much is enough? How much is too much? Answers to questions like these can only be determined by an individual CEO’s own board using every possible resource available to them. In the end, if the CEO doesn’t agree with the board’s assessment of his or her value, it is probably time to move on. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected].