Call CEO pay the credit union governance hot potato. “This iscertainly an increasingly hot topic,” said attorney MichaelLozoff, chair of the credit union practice at Shutts and Bowenin Miami.

Top executive pay is a topic that many in the industry want toduck, and the reason is as plain as the avalanche of bad press wonby David Maus when it was revealed that the CEO of Public ServiceEmployees Credit Union in Denver was paid more than $11 million in2010 by the $1.1 billion institution. And then there was the $2.1million paid in 2010 to Grace Mayo, CEO of Telesis Credit Union, a $301 million institution in Chatsworth,Calif. that was liquidated in June 2012. That too won an enormousamount of press, mainly bad, and an upshot is widespread industryreticence about addressing this topic in public forums.

But Olympia, Wash.-based industry consultant Marvin Umholtzshrugged off those stories.

“News stories about highly paid credit union CEOs, and thefirestorm of condemnation they sometimes generate, have less to doabout what is fair and more to do about political perceptions ofwhat the credit union industry should or should not be,” hesaid.

The irony, said many experts, is that those cases are the exactopposite of the industry norm.

Scrimping on CEO pay may be more typical, insisted John McKechnie,a onetime NCUA staffer now managing director at Total Spectrum, aWashington lobbying firm. “Credit union professionals are in no waycompensated as well as their bank counterparts,” he said.

Hefty pay packets for CEOs are not necessarily a bad thing atall, stressed Birmingham, Ala.- based industry expert DennisDollar.

“CEO salaries at credit unions have grown because credit unionshave grown. The position requires a much more sophisticated set ofprofessional abilities than it did even 20 years ago,” Dollar said.“As that expectation of a much higher qualification mix has beenenhanced with larger and more complex credit unions, there issometimes controversy when the CEO salary becomes public knowledgebecause of the fact that many members still look at their creditunion like they did in the 1960s. But, to paraphrase the oldOldsmobile commercial, this isn't just your daddy's credit unionanymore,” he added. “The market has changed. The competitors havechanged. The regulations have changed. The expectations havechanged. So, naturally, the salaries have changed as well.”

Overpaying CEOs may not be much of a problem at credit unions,but there is a big–more common and delicate–executive pay problemat most credit unions, and that is reaching agreement on pay thatis sufficient to retain talented executives, said Scott Dettman, a compensation consultant who works with many creditunions and also with CUES,which regularly surveys credit union executive pay. (In June, CUESreported that the average CEO pay at institutions with assets over$1 billion amounted to $523,694.)

“There is a law of supply and demand that applies to CEO pay,”said Dettman. His point is that the talent pool of individualscapable of running complex financial institutions is not infiniteand, besides credit unions, community banks also are competing forthe same individuals.

“We have to get beyond our own circumstances in seeing what isadequate pay,” added Dettman, who elaborated that at traditionalcredit unions with defined membership fields of, say, blue-collarfactory workers or public school teachers–occupations with caps onupper tier incomes–there frequently is resistance to opening thepurse.

“The best pay plan is the one you get people to agree to.Getting board-level agreement can be a challenge,” said Dettman.“Whatever they make will be seen as a good day's wage. Talk to aneducator about paying a CEO $300,000 a year and their eyes float tothe back of their head.”

As for how to get realistic numbers on the negotiating table,Sundie Seefried, CEO of Partner Colorado Credit Union, a $227 millioninstitution based in Arvada, said, “The board's best option is todiscuss the salary with a third-party professional that knows thecredit union industry. Using a third party keeps the process lesspersonal and more objective.” 

Dettman elaborated that a starting place is for the board, or asubcommittee on compensation, to gather data on CEO salaries atcompetitive institutions. Although pay at federally charteredinstitutions is not publicly available ample data, with individualidentifying aspects removed, is available in salary surveys sold byCUES and CUNA.Survey data, said Dettman, has enabled CEO pay discussions tobecome, if not exactly scientific. “much more exact. This still isan art, but we have gotten more precise,” said Dettman.

Another crucial starting point: “The credit union has to decidehow well it wants to pay,” said Dettman, who indicated mostinstitutions appear comfortable aiming to pay at around the 50percentile, meaning half the competitive set might pay more, halfless. “But some want to be at the 75th percentile.”

The choice is entirely up to the board and how it elects toposition the credit union, stressed Dettman.

He added that salary is just one part of what can become amultifaceted pay packet involving perks (a country club membership,for instance), enhanced employee benefits, enriched retirementplans and many more variables that typically enter into thenegotiation.

“Once there is agreement on the board about its philosophy ofCEO pay, arriving at a pay package gets easy,” said Dettman. Headded that  board discussions can get animated, but mostremain collegial.

Attorney Lozoff added that, important as competitive set and payphilosophy are in setting an initial compensation plan, differentcriteria assume bigger importance in the years that follow.“Increases in compensation in subsequent years, and bonus pay, areincreasingly based on satisfactory achievement of objective goalspreviously set by the board in consultation with the executive andthe financial condition of the credit union.“

And just when it appears there is a formula for determining CEOpay, setting a compensation philosophy and surveying thecompetitive set, a wild card emerges. That is the compensationapproach at the nation's second biggest credit union, the $25billion State Employees' based in Raleigh, N.C. CEO Jim Blaine wrote in an email that at SECU CEO compensation iseasier to grasp and that is because he gets no bonuses, noincentives, no perks and exactly the same benefits as every otherSECU employee.

He added that at SECU, his pay is set not by reviewing what thecompetitive set pays, but by attempting to adhere to a policyBlaine attributed to management guru Peter Drucker-that the CEO's pay should not exceed 20 times the average pay inthe institution.

That works for Blaine, but consultant Umholtz stressed that whatworks at SECU might not work elsewhere. “Imposing that kind offormula on other institutions would be disservice to theindustry.” 

He added: “What the board decides is fair pay for its CEO is, bydefinition, fair. It's that simple.”