When the CEO of Home Depot was dumped in 2007, he walked awaywith a $210 million severance package, a pay-for-failure approachthat drew disparaging headlines and a barrage of criticism.

By December that year the nation was officially headed into amajor recession, further inflating the attention paid to salariesand bonuses of CEOs and other executives.

What this has meant to credit union CEOs and others on theexecutive team is ratcheted up the focus on pay for performance. Atthe same time, with the economy still struggling and margins tight,it has generally translated into what can be politely called a lessrobust increase in paychecks. 

Guy Collins, principal at Executive Compensation Solutions,noted the firm's most recent compensation survey found salary andbonuses growing by about 4%. That compared to 7% previously.

The biggest hit occurred at smaller credit unions, with the ECSsurvey showing CEOs at credit unions with less than $100 million inassets earned $103,138 in 2011 compared to $110, 837 in 2010. ForCEOs at credit unions on the other end of the scale, those withassets greater than $1 billion, total cash compensation in 2011averaged $486,117. That was up from $460,234 in 2010.

Banks, of course, have faced a flood of criticism includingconcern about executive salaries. But the 2011 American BankersAssociation survey showed bankers still outpacing their creditunion counterparts. The national average for bank CEOs in 2011 was$298,968, compared to $228,178 for credit union CEOs. At smallbanks under $100 million in assets the CEO averaged $164,465compared to $103,138 at a comparable size credit union. The figuresat institutions $1 billion and more in assets were $550,479 forbankers and $486,117 for credit unions.

One interesting finding was that credit union boards are takinga much more objective view in setting incentives and bonuses. It'san effort to align the credit union's goals with executive compensation.

Board discretion is becoming less important. Twenty-six percentof those responding to the ECS survey indicated such discretion wasa major factor, compared to 46 % in 2009.

“For the second year in a row,” the report indicated, “loangrowth was the leading performance factor evaluated by creditunions in the measurement of performance goals. This is notsurprising given an environment where loan demand is weak andplacement of funds is difficult. Return on assets was used by 56%of respondents. Other important criteria are membership growth andsatisfaction, expense ratios, and loan delinquencymeasurements.”

It means credit union CEOs and other executives face moreat-risk or pay-for-performance compensation.  The surveyfound a national average of $42,405 in incentive pay to creditunion CEOs, jumping to $108,826 for CEOs at credit unions with morethan $1 billion in assets.

However, Collins offers some cautions on bonuses.

“If you're looking to motivate your executives with bonuses, youmay have hired the wrong executive team,” he stated. “A goodexecutive typically doesn't need motivation, but does need targetsand direction. They do need to be told what the credit union wantsto accomplish. When structured with an aligned compensation plan,the incentive targets go hand-in-hand with the bonuses. It clearlylets the executive team know what the organization wantsaccomplished.” 

Even though, as indicated earlier, credit union boards areincreasingly binding CEO compensation to long-term goals, thatshift isn't complete.

“There have been some struggles with how to incorporate thatgoal planning into the compensation program,” Collins said. “Westill see a large percentage of programs utilizing a rear viewmirror. You get to the end of the year and ask, 'How did we do? Iguess we did pretty good.' 

“This typically leads to confusion regarding how to rewardexecutives. It doesn't really answer the question of whether thecredit union accomplished what it set out to do.  

“We've seen organizations that had recent success point to thelinking of long-term goals to performance in their executive planas a key driver of that success.”

If that suggests communication between the board and executiveteam is important, Collins agrees.

“Communication is probably the most important piece of theprocess,” he said. “But it does have to be a two-way street. Itgoes hand-in-hand with the aligning of objectives withcompensation. How will that be measured? What will the resultingprofit to the executives be? What will the benefit to the creditunion be? It all contributes to the success of the compensationprogram.”

So we're seeing closer scrutiny of executive compensation, and amove to pay for performance. What about the impact of the expectedlarge number of credit union CEO retirements? Will credit unionshave to compete harder for talent?

“Credit unions will have to look more closely at the non-CEOexecutive compensation and make succession planning more of apriority,” Collins responded. “As the market recovers and thecurrent population of CEOs reaches retirement age, credit unionswill need more people who can step up into those roles.

“Credit unions that have home-grown talent in their executiveteams will begin looking at the same incentive review andgoal-setting processes used for their CEOs. Dollar amounts might bedifferent, goals might be different based on roles and experience,but these plans will keep the executive team together and possiblykeep the ultimate successor to the CEO at that credit union.Succession planning is going to be a higher priority.”

Joe Brancucci, president/CEO of GTE FCU, also expects to seesome changes in executive compensation.

“You are going to have to work very hard to get talent,” hesaid. “You have to make sure you take care of the existing talenton board. When the economy recovers, you will have a number ofsenior executives retiring, you are going to have an economylooking for really talented executives in general, and we're goingto have to compete with the best of them. You will have to makesure that when you have an available position you areconsidered.” 

GTE FCU uses a consultant to assess all positions every year andestablish an appropriate salary range. 

“We're very much focused on having a balanced plan in place,”Brancuccisaid. “We also have to manage cost, so we've done a lot ofthings to manage the cost of the benefit package. We have a lotmore variable pay and variable benefits, for example a variable401(k) contribution from the organization. 

“We have an incentive plan which is very much designed aroundthe goals for the year. You know what to focus on. I'm a bigbeliever in setting goals and rewarding people accordingly. We hada very elementary plan in 2007, and now we have a much moresophisticated one. Employees are accustomed to having it as part oftheir compensation, and they're very much into it. Compensation isdefinitely aligned with strategic objectives and performanceobjectives for the year.”

Central Willamette Credit Union also struggles with compensationissues and is current reviewing its approach.

“We had not completed a compensation survey in several years,”explained president/CEO Elaine Eastman. “We were scheduled tocomplete this review in 2009. However, once the recession hit, wedecided it was a moot point given that we were faced with salaryfreezes and furlough days until the recession was over and we movedinto economic recovery.”

The review includes:

Ensuring all job descriptions are up-to-date and reflect currentduties and responsibilities.

Comparing positions to like or similar jobs using localcompensation surveys.

Benchmarking executive positions using CUNA data. Otherpositions will be benchmarked using those local compensationsurveys.

Initial research indicates the credit union is close to marketexcept for a few mid-management positions. However, furtherresearch is underway to ensure positions are accurately compared tolike positions.

Is CEO compensation being aligned with strategic objectives?

“This is another area that is being clearly defined,” Eastmanindicated. “Compensation is based on both subjective and objectivequalifiers. Subjective is tied to characteristics as outlined in myjob description. Objective aligns with strategic goals andobjectives.”

The challenge, Eastman added, is to balance a fair andcompetitive compensation package with the realities of the creditunion's budget.

“Economic recovery is still slow,” Eastman noted. “We mustcontinue to manage all expenses to rebuild capital, yet recognizehow critical it is to maintain and build a total compensationpacket to reward and retain employees.”