The latest CUES Executive Compensation Survey indicates anupswing in CU executive pay this year. And as credit union boardchairmen and one compensation consulting firm explain, thecompensation determination process has become more complex andvaries from credit union to credit union.

According to the CUES survey, which comprised 467 respondents,the average base salary for credit union CEOs increased 4.37% in2011, as opposed to 3.62% in 2010. Total CEO compensation increased by 5.07% in 2011, an uptickfrom 2.39% in 2010, and the rate of increase for salary plus bonuswas 5.01% this year, compared with 2.54% in 2010.

CUES also found base salary increases among other CU executivesranged from 3.04% for business lending executives to 7.30% forbusiness development managers.

“There's been a return to the pay level increases that werecommon pre-recession,” said Charles Carlson of Carlson DettmanConsulting, a human resources and compensation firm that leads theCUES survey. “It's important to keep in mind that even if theeconomy is flat, certain companies can be doing well. If you lookat the financial returns of credit unions, most of them didn't havea lot of the problems that banks had, so it's a pretty healthyenvironment.”

The CUES survey also looked at the most common factors in determining incentive pay. Boardevaluations were the top factor, named by 57.8% of respondents,followed by earnings at 57.1%, loan growth at 35.5%, membershipgrowth at 21.3% and member satisfaction at 20.9%.

Carlson noted that the compensation determination process hasbecome more complex in recent years, with CU boards emphasizingorganizational performance factors, such as return on investment,asset growth and loan growth. Boards also tend to evaluatecompensation with some distance from their credit union's CEO andoften consult an independent resource such as a compensation firm,Carlson said.

“They might look at where the person is in his or her executivelife,” Carlson said. “If they don't want to lose that person, theymight put together a good incentive program. They might also lookat whether they're recruiting for a new executive. A lot of CEOsare getting ready to retire, and that can bid up pay for thesuccessor.”

Executive Compensation Solutions, a Covina, Calif.-basedcompensation and benefits consulting firm for credit unions, sharedsome of the preliminary findings of its 2011 employee and executivecompensation and benefits survey, which found that  CEOsalaries increased by 2.7% this year at CUs with $100 million orless in assets and by 6.1% at CUs with assets between $500 millionand $1 billion.

However, the average salary for CEOs at credit unions of allasset sizes is slightly lower than it was last year, ECS said. Thisdifference is an example of why it's important to not drawconclusions from individual percentage increases, ECS Director ofOperations Adam Zelinsky said.

Developing a written compensation philosophy is key for creditunion board members, which is an outline of compensation settingprocedures and how they relate to the credit union's big-picturegoals, he said.

“The main point of a written compensation philosophy is to alignthe compensation structure with the goals of the credit union andits members, so that it's all tied together,” Zelinsky said.

Executive base salaries are often based on a chosen percentileof the average salary for a similar position. For example, a CUwith $1 billion in assets might require a CEO salary that's in the75th percentile of its peer or competitor group. In determiningtotal executive compensation, boards also consider factors relatedto the progress and success of the credit union, such as loangrowth, return on assets and member satisfaction, Zelinskysaid.

He added that no two CU executive compensation evaluationprocesses are the same; each credit union determines compensationwith its own organizational goals in mind.

Reports from current and former CU chairmen demonstrate how theprocess can vary. Marty Goldman, chairman for the $682 million,Jacksonville, N.C.-based Marine FCU said he and other board membersconsult with several organizations in determining the CEO's basepay, namely the National Association of Credit Union Chairmen. TheCEO's bonuses are based on six monetary goals, which may becompensated even if 75% of the goal is attained. Marine FCU hasseen an average base salary increase of 2.5% for all of itsexecutive level positions, Goldman said.

The Ewing, N.J.-based, $306 million Credit Union of New Jerseyrelies heavily on input from a compensation firm in determiningexecutive level pay, president/CEO Andrew Jaeger said. The CUassigns each executive-level position a salary range with aminimum, mid-point and maximum salary and manages each personwithin the range depending on performance. He said merit-basedsalary increases have averaged 2% to 3% for the executive team overthe past couple of years.

“It is our policy to utilize third-party expertise to ensureobjective salary administration,” Jaeger said. “Procedurally, weadjust the ranges each year based on their suggestion, and wedevelop a merit matrix based on their assessment of what theaverage merit increases will be for the coming year.”

John Steck, former chairman for the Salt Lake City-based UtahCentral CU, developed a performance and gains-based points systemthat the board used to determine the CEO's annual raise; items onthe system's checklist included loan growth, asset growth,delinquencies, charge-offs, return on assets and net operatingexpenses. Bonuses for the executive team were pulled from an annualbonus pool that amounted to  3.5% to 7% of the creditunion's net earnings, said Steck, who now serves as chairman forNACUC.

Due to a salary freeze, employees at Utah Central CU have notreceived raises since 2010, Steck said. Utah Central CU wasacquired by Chartway FCU of Virginia Beach, Va., earlier this yearand has seen declines in the value of its real estate portfoliosince 2010.

“Some credit unions have been very aggressive with theircompensation, but we were in a different scenario,” Steck said. “Wetried to put ourselves in a safe zone.”