White Paper Analyzes CEO Compensation; Boards Need to be Aware of What Bankers, Other Comparable Execs are Making

MADISON, Wis. - Are credit union boards realistic about executive compensation programs? A recent white paper Quantifying the Value of Leadership, suggests that board directors serving at credit unions with $500 million or more in assets may not be since they face different challenges when it comes to executive compensation. The paper finds that a top priority for the largest credit union boards must be designing and maintaining an effective executive compensation program. "What sets the largest credit unions apart is the need to compensate CEOs at levels that are commensurate with their significant responsibilities," said Survey Research Associates President/CEO Charles E. Carlson, who co-authored the white paper. "The CEO's leadership really does impact organizational success, I believe, and these are major positions that are comparable to executives in private sector firms that receive significant compensation packages." Given that the total pay and benefits package must recognize the CEO's talents, skills and range of experience while reflecting the compensation practices of the credit union and financial service industry, to be an effective retention tool the program should be tailored to the individual. "The need for informed, independent board awareness and action in determining executive compensation has never been greater," said Carlson. Credit unions with more than $500 million in assets will now have access to Compensation Value Index, (CVIndex) a resource co-sponsored by CUES and CUNA designed to deliver comprehensive compensation data. "There is a real emphasis today on managing executive compensation so it is competitive, aligned with performance and reasonable in light of what comparable executives earn, inside and outside of the credit union movement," said Carlson. Comparing preliminary data collected for CVIndex and credit union industry averages in the 2005 CUES Executive Compensation Survey, the white paper also lists the special compensation program challenges facing large credit union board directors. Just a few of the board challenges include the following: * There is a smaller pool of executive candidates and fewer models of executive compensation practices in the asset range; * Designing a long-term incentive reward that does not open the CEO to tax liabilities negating the reward; * Additional regulations in creating supplemental retirement programs and other benefits and; * Broad-based 401(k) retirement savings programs, pension plans and life and disability insurance restrictions make it impossible to offer proportional coverage of the CEO's salary. Carlson says board education and access to unbiased information related to executive compensation are the keys to developing full-featured compensation programs. Comparative analysis of "average" credit unions and large credit unions finds that while three-fourths of CEOs received a bonus averaging $24,509, nine out of 10 of the largest credit union CEOs receive a bonus averaging $63, 356. In addition, total compensation for CU CEOs rose 8.1% but it is still below the 15.7% total compensation hike for credit unions in the largest asset range. With more of the largest credit unions looking outside the industry for their CEOs, Carlson says boards have to learn about the levels of compensation that, for example, bankers are accustomed to if they hope to recruit the most talented candidates. -mdigiovanni@cutimes.com