The Cost of Transparency, Fiscal Responsibility
A lot of the scuttlebutt around the industry over the last couple of weeks has been about transparency and fiscal responsibility. Take for instance, the NCUA’s announcement that it’s cutting back on spending for its examiner education conference in Florida.
Advances in technology have created invaluable savings to provide educational opportunities across all businesses. At the same time, it’s also made education and business less personal. I can’t think of a single company or government agency that isn’t in the people business.
Dealing with other people is exactly what examiners do for a living, so the NCUA bringing them all together in one place is a good thing. When examiners can gather face-to-face to discuss issues they’re having or trends they’re seeing–even if it’s over free donuts or beers–is a good thing for them and for credit unions. It’s not as if the NCUA is bringing everyone to St. Kitts or on an Alaskan cruise as some credit unions regularly participate in.
In fact, credit unions should be excited that the agency is at least trying to address some of the issues that have boiled over during the last few years of financial crisis. Examiners have had extra workloads, taken intense and enormous scrutiny and public criticism for a variety of things, most of them they have no control over. A few credit unions fail for problems that were obvious, so all the examiners get painted with a broad brush. It’s enough to make anyone a bit cranky and defensive when they enter a credit union, not to mention the pressure they must be getting from above stemming from the economic problems and rush of new laws and regulations.
Likewise, credit union executives are experiencing their own problems with compliance burdens, loss of earnings on spread and net worth pressures. Combine both stressed out parties and you’ve mixed a Molotov cocktail. The natural tension between regulator and regulated snaps.
The cliché that a few bad apples spoils the bunch comes to mind. Along that vein, it also brings to the forefront recent reports on credit union CEO compensation that have drawn attention to themselves. Specifically, we reported recently on the retirement compensation of David Maus at PSECU and Grace Mayo’s income as she left Telesis, which have stirred up a hornet’s nest. Maus’ pay made news for the shear dollar amount, but Mayo’s came during a time of very poor financial performance at her credit union.
I am all for individuals making what they feel they deserve, and assuming Maus lives beyond another 10 years, his retirement package will be considerably less than his base compensation. However, I’m also in favor of ensuring the board of directors educates itself regarding best practices in relevant executive compensation packages as well as not rewarding employees for screwing up royally.
Pay for performance is becoming more common among credit unions, which can be positive if it is in line with the credit unions’ strategic goals. The leaders you want to hire are those that want to a good job that they are rewarded for, not those that chase the reward.
One CEO told me last week the tax exemption should go back to the members, not to the CEO. That is true in part, but hiring the right talent to create the best possible returns to the members carries a value, too.
Currently only state-chartered credit unions are required to file a Form 990 with the IRS, which publicly discloses executive compensation packages among other things. Federal credit unions should be required to publicly disclose executive compensation information. Yes, some executives will be embarrassed releasing how little or how much they make. Certainly some credit unions aren’t paying their top staff enough by today’s financial industry standards.
Credit union executives are the unfortunate position of filling positions that started out as nonprofessionals. A teachers’ organization would start a credit union and one of the teachers would manage it. Some board members may have been around 40 years ago when that happened. The modern-day credit union is much more sophisticated–particularly so in the last 10 years–and so should their executive compensation packages be.
At the same time, federal credit unions are not-for-profits and should have to disclose executive compensation packages. The NCUA and other financial institution regulators have a proposal out under Dodd-Frank to disclose executive compensation to the respective agencies. While I disagree with the NCUA proposing a lower threshold than the other agencies, transparency is the way the world is moving. Besides credit unions make hay every year over what NCUA executives are paid.