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<p>More and more credit unions are declaring larger and larger bonus dividends. What a terrific opportunity this presents for loyalty-building member communications, and nonmember public relations, for both individual credit unions and for all credit unions in general. However, believe it or not, there can be a downside to paying a bonus dividend. Really? How can credit unions go wrong with something so positive as giving back to members a percentage, sometimes substantial, of their own money? After all, no credit union is required to declare a bonus dividend. For starters, a bonus dividend to credit union members might be compared to the mindset of an annual bonus to employees. The first time it is done, everyone jumps for joy, especially if the largess was completely unexpected. The next year the bonus from the previous year is foremost in staff members’ minds. Will there be another one? Was last year just a fluke? The organization is doing well so surely we’ll be rewarded for the important role we played in that success, right? In fact, there should not only be a bonus again, but it should be larger. Breathe easy. Another bonus was given and it was in fact a bit larger. The next year, and the next, and the next, same thing. Eventually, the “annual” bonus is taken for granted. So is the fact that it will continue to go up. While still called a bonus, it is in reality now regarded by recipients as a regular part of their annual compensation. Try taking it away and see what happens to all the warm fuzzies that first bonus generated. Even if the organization has a bad year and can’t afford a larger or, worse case scenario, any bonus, it has come to be expected. Relate this to credit union bonus dividends. That first time, it is unexpected and there is real joy among members. Each year, especially if the bonus increases in size and scope, members learn to appreciate their credit union even more. Afterall, other financial institutions don’t return excess funds to their customers (members). Here comes the possible down side unless there has been effective member communications from day one. Members may begin to take bonus dividends for granted. They may not be prepared if the day comes when they may be reduced, or eliminated entirely. Obviously, from the first bonus dividend forward, members need to understand the meaning of “bonus.” Another possible downside is a feeling expressed by a tiny minority of members who seem to be looking the gift horse in the mouth. Their thought process goes like this: If the credit union has all this money (in some cases millions of dollars) to give back year after year, was it not charging members too much for loans, fees, etc. in the first place? Or was it not paying out the highest possible dividends throughout the year? Perhaps this line of thinking could have been cut off at the pass by better member communication surrounding the bonus dividend declaration? And by giving careful thought to whom dividends are paid, for what reason, and by what method. Then making sure members know and understand what went into this decision-making process. Step one of course is an explanation of why the credit union is able to do this even though it consistently paid higher dividends throughout the year on all savings products and charged less interest on all lending products. Most dividend-declaring credit unions do a good job of ticking off the many reasons, but not all. Member attitudes are not only influenced by the amount of money, but by how it is distributed. Some credit unions credit it to members’ accounts. Some, not many, actually issue checks to members. Only individual credit unions know what method will potentially produce the most member appreciation mileage for them. But again the key is good communications. Another possible downside is not taking full advantage of a great PR opportunity. Some credit unions feel declaring a bonus dividend is between the CU and its members. That’s a mistake. Sharing the good news with members is important. So is making sure that they understand why the credit union was able to do it. Also, exactly why the bonus dividend was distributed in the way it was. But it is also important to communicate with potential members and the communities in which the CU has a strong presence. By doing so, the credit union difference is highlighted and the industry as a whole looks good. What a great opportunity to encourage members to write letters to the editors of local media bragging about their credit union. Or to take photos at the dividend-declaring “event” with members front and center to be sent to the trade and mainstream media. Or to run testimonial ads featuring happy members praising their credit union. Or to give speeches to local clubs. A final possible downside of credit union bonus dividends may be CU employees who have grumbled that perhaps at least some of this money should have found its way into their pay envelopes for working so hard and efficiently to make the dividend possible. Maybe at least a separate staff bonus, even though as members they shared in the bonus dividend so would that make sense? Obviously the positives of credit union bonus dividends far outweigh any possible downsides. Nevertheless, by mentioning them here, perhaps credit unions that declare bonus dividends will at least want to review exactly how they go about it to help prevent any downsides from possibly smudging their CU’s white hat. Final question: why can’t and don’t all credit unions declare bonus dividends? Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected]</p>

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Peter Westerman

Credit Union Times

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