SAN DIEGO — Without a proper executive benefits package for the entire executive team, credit unions risk losing potential CEO replacements to organizations, competing banks and other credit unions, said CUNA Mutual Group’s Scott Albraccio, executive benefits sales manager, during a breakout session at America’s Credit Union Conference.
During the next five years, credit unions across the country will replace their existing CEOs. A CUNA compensation survey suggests 21% of credit union CEOs will retire during 2011 through 2012.
To prepare, credit unions should develop proper compensation packages for executives and their top lieutenants, Albraccio said. Deferred compensation plans for C-level executives can create golden handcuffs that will prevent them from leaving if a new CEO joins the team while providing continuity during the transition period.
“Credit union compensation plans can no longer just focus on the CEO,” Albraccio said. “We also need to look out for our C-level executives, those that are likely to be the future CEOs.”
At the same time, existing CEOs are facing a potential compensation gap when they retire. The guidelines illustrated by the Employee Retirement Income Security Act restrict the amount of money highly compensated employees can contribute to their 401ks compared to lower compensated employees.
On average, retiring executives receive 38% of their current income upon retirement, whereas frontline employees receive 60% to 65% of their income. Albraccio suggested credit unions begin implementing a supplemental executive retirement plan to eliminate the disparity.
SERPs put credit unions in a position to maintain continuity of strategic decision making while addressing financial needs of senior executives, so they can focus on long-term strategic goals and financial success on the job.
Albraccio also advised attendees to have a formal CEO succession plan in place that has an executive development component along with financial incentives to retain top talent. Only 63% of credit unions have a formal succession plan.
Some have a real succession plan, while others have what he termed a “break in case of emergency” plan. The latter is an emergency CEO succession plan that prepares the credit union for the death or rapid, unexpected departure of the CEO. It’s a short-term disaster recovery plan to keep the institution going until a new, permanent CEO is hired.
“The break in case of emergency plan is important, but a true succession plan doesn’t just choose internal successors to a credit union’s top executive positions. It prepares internal successors, which provides more stability and consistency with the organization’s strategic plan,” he said.
Albraccio noted that over the next five years 52% of employers in the U.S. will be challenged with filling critical positions. Desire for competent CEOs will be highly competitive, creating a high level of urgency for a useful succession plan.
Although few CEOs are likely to depart between now and 2013, it’s crucial that credit unions have a plan in place for such a scenario.
“Begin developing and implementing succession plans and SERPs now before it’s too late. It’s imperative to recruit, retain, reward and retire our key employees or we risk losing to our competitors,” he said.