Developing Compensation Plans for Business Loan Growth: Onsite at CUBG

SAVANNAH, Ga. – When developing a compensation plan for employees in a credit union’s commercial lending department, human resources executives should consider the institution’s lending goals and ensure the plan encourages employees to reach for them, according to Judy Clark, owner and founder of HR Answers in Tigard, Ore.

Clark led a session at the 2018 CUBG National Business Conference Tuesday, where she discussed compensation theory and philosophy, as well as considerations for HR professionals developing pay and incentive programs for lending positions at credit unions.

She emphasized the biggest question compensation plan developers should ponder is, “What do we want to the plan to do for the credit union/?” So for example, if the credit union is looking to close bigger loan deals, loan officers’ incentive payouts should be based on the size of the deal.

And the plan must be clearly communicated to the lending employees ahead of time. “One of the biggest problems a compensation plan can have is when it doesn’t allow employees to understand how they can win,” Clark said, adding that plan developers should ask themselves whether the plan captures the attention of the people in the job, and if it focuses them on the goals their managers want them to have.

All compensation plans should include a sunset clause, she said, so employees won’t be led to believe they’ll be entitled to the compensation throughout their tenure on the job. A sunset clause also allows credit unions to make tweaks to plans as their lending goals change.

When selecting pay ranges for lending employees, HR executives must first research relevant wage and salary surveys, Clark advised, noting that in order for a survey to be relevant, it must represent the credit union’s region, be reflective of other organizations in the credit union’s peer group and not contain any data that is more than two years old. Prior to consulting surveys, it’s really important for executives to determine all the facets of their compensation philosophy, Clark said. “How much do I want to give in base, and how much do I want to risk for incentive? Will the decisions be made by the executives, or will they be based on articles and research?” she asked.

The compensation philosophy should also include things like the credit union’s market position (whether it will lead, lag or match the market), the cash/benefits mix, the role of performance-based pay, the performance assessment process, the compensation communication plan, and review and change processes for the plan, she explained.