A couple of state legislatures have recognized the value of credit union directors' work toward maintaining a safe and sound credit union. Washington state and Tennessee credit union regulators recently permitted state-chartered credit unions there to compensate board members for their time. This was a wise move for a number of reasons.

First, as I said, it recognizes the value of the board members' time and expertise. And it is not as if directors are doing warm and fuzzy things like candy striping or walking dogs at the Humane Society. They are crunching numbers and approving audits for IT security and ensuring Bank Secrecy Act compliance – all at a huge personal risk.

Sen. Jack Johnson, a Republican from Tennessee who also happens to be a senior vice president and financial adviser for Pinnacle Financial Partners in Knoxville, said as much when he sponsored the bill in his state senate. He cited the growth and complexity of the financial services industry that is creating more time demands, expertise and deliberations among board members.

The new law does require credit union boards that decide to compensate board members to adopt a resolution that the credit union needs expertise among board members for the general management of its operations. The board also will be required to adopt a policy governing the participation and attendance of board members in order to receive compensation, and that the board members' compensation be published in the annual report. It does not permit paying credit or supervisory committee members.

Another benefit to paying board members is that there are no more excuses to accept mediocre or even lower performance just because they're volunteers. If board members are paid X, it means they should perform up to that value, however the credit union wants to measure it.

I attend many conferences and inevitably you hear, “What can you expect? They're volunteers.” The risk to the institution and the individuals is no less than a comparable bank. Credit union management, directors and members must accept nothing less than a full effort to keep up to date on the financial services industry, their members, technologies and governance issues.

The new authority will also help credit unions in these states diversify their boards. Credit unions opting to use this new power will be able to attract people with specific skills to the board that might currently be lacking.

Directly compensating board members is also clears up a messy ambiguity. Credit unions already compensate their boards with educational conferences that are held on an Amazon tour or aboard an Alaskan cruise ship. Setting a stipend and paying it for performance is much more ethical and transparent.

Take for example the $1.4 billion Trumark Credit Union, which pays its board members between $30,000 and $60,000 each per year for an aggregate of approximately $450,000. Sounds like a lot of money for an industry that prides itself on the volunteer leadership.

If you look more closely, Trumark earned $14.5 million in net income last year and appears to be on track to exceed that in 2013. According to the NCUA's financial performance reports, the credit unions in the peer group over $500 million in assets in the capital region averaged $2.5 million in net income last year. However, return on assets was in line with this group of peers. Did compensating board directors contribute to Trumark's high net income? It's definitely a matter to explore.

On the other hand, I know a board chairman who won't even accept personal mileage reimbursement to attend board meetings after retiring from his job and moving more than two hours away from the credit union.

What does bother me about these two pieces of legislation is why the bankers didn't bother to oppose them. They seem duty-bound to fight any new authorities credit unions try to obtain yet they maintained a cacophony of silence.

American Bankers Association Senior Economist Keith Leggett explained that the association viewed the issue as a mere internal governance issue, and that perhaps it would attract better-qualified credit union board members.

Particularly as the tax exemption issue raises its ugly head yet again, why aren't bankers attacking this “power grab?” Credit unions often point to their volunteer boards of directors as one of the justifications for their tax-exempt status. Do the bankers see this as an opportunity to weaken credit unions' case for maintaining the tax exemption?

Instant Insights /

Pay Can Raise Expectations for Credit Union Directors: Editor/Publisher's Column

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