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EUGENE, Ore. – The spotlight on credit union CEO compensation at Oregon credit unions continues to shine, and one credit union decided to take the unprecedented step of voluntarily informing members of the CEO’s compensation. The $548 million SELCO Credit Union based in Eugene, Oregon mailed a letter to its 71,000 members informing them of CEO Ava Milosevich’s compensation over the last three years. Three years is how far back individuals could go if they requested the information from the Internal Revenue Service. State-chartered CUs report compensation data on form 990. So why did the CU make such a unique move? “There are more and more articles coming out regarding CEO compensation. We decided we wanted our members to have all that information at their fingertips” said Milosevich. The letter was in part prompted by articles published by the Oregon-based Register-Guard newspaper, the paper that originally reported that the merger between Portland Teachers CU and Oregon Community ultimately failed because the regulator was pushing for the CUs to inform members about CEO compensation before they voted on the merger. Both CUs maintain that operational and philosophical differences, not the compensation request, killed the merger. Milosevich said she was contacted by the newspaper about a follow-up story and the credit union decided to get information out there to members before they had to read about it somewhere else. The letter highlights just a few of Milosevich’s achievements, such as turning lending around in 2002 from -1.47% to +21%. It also focuses on how the CU’s product menu has grown under Milosevich who has led the CU for the last 14 years. She said there were all kinds of stats and facts the letter could have detailed, but the CU didn’t want to go too heavy on them. Then comes the compensation. According to Milosevich, it lays out the past three years of Milosevich’s compensation, which are as follows: *2001 – $239,836 *2002 – 260,657 *2003 – $350,000, plus a $105,100 performance bonus These numbers aren’t out of the ordinary for a CEO of a CU the size of SELCO. What seems to have caught members’ eyes is the contributions to Milosevich’s 457f plan. The board decided to do a series of structured contributions to the plan, including $529,509 in 2002 and $1.1 million in 2003. While those may seem high, Milosevich, 64, points out that she did not have such a plan for her first 10 years as CEO so the board is making up for that with catch-up contributions. Why no plan for so long? “I didn’t push for it. In that 10-year period from 1990 to 2000 we were building the credit union, that was the most important thing. We built a lot of infrastructure,” she said, which costs money, It was a bit risky in terms of planning for retirement, in fact a lot of credit union CEOs’ retirements are at risk until the day they step down because of the way plans are structured. “If I decided I wanted to retire, I have nothing for pension, it belongs to the credit union today. It won’t come to me at all until the plan ends in 2005. I have to receive the money all at one time. It would be pretty easy to figure out that it will be taxed at the highest tax bracket and 46% of it will be gone,” she said. “You don’t have the option like you do with defined benefit plans to pay the taxes over time in a lower tax bracket,” she said. The letter has generated member inquiries, some of which aren’t exactly positive said Milosevich, as some members question the amount of the compensation. In many cases the CU’s chairman is personally returning member calls. She said one of the positive byproducts from the calls is the members are talking about what they’d like to see the credit union do in terms of branch access, products, etc. “People like to be heard, and we want to hear what they think,” said Milosevich. Milosevich said that the CEO salary comparisons that are going on don’t tell the whole story. “Compensation is very complicated. In my opinion you can’t take one credit union CEO even of a same asset size and compare their salary and benefits to another. It really is about the value that the CEO brings,” she said. She noted for example that in her case she is not only the CEO of the credit union, but also of three of its subsidiaries – SELCO Group, SELCO Mortgage Co. LLC, and Frontier Investment Company. SELCO also has a full-service member business division. SELCO was the second credit union in Oregon to have online banking and it is now embarking on penetrating a new field of membership. It added four counties to its FOM in January when it moved to a community charter. “There are a lot of moving parts here for a CEO and a lot of responsibility. If you look at one CEO and say they’re just like this one, they’re not. I don’t think it gives you a picture,” she said, noting that even memberships can vary dramatically by income, culture, etc. First Tech CU President/CEO Tom Sargent said when First Tech was a federal charter, it never thought about this issue of CEO compensation going public, but as a state charter with the 990s, it’s rethinking the issue. One thing First Tech is considering is being more upfront in its financials about executive compensation so members can see the information. “It’s no fun having your salary aired out there at the end of the day, but the rest of the day you say that’s what I earn, that’s what I earn. Someone asked me how this affects the mom and pop image of credit unions, I’ve never referred to credit unions as mom and pop. These are complex organizations. I think another misconception is we are credit unions and not charities. It’s not like someone is making a contribution that’s not making it to the charity,” said Sargent. The salary issues coming out of Oregon have driven home the need for credit union boards to get educated on how to implement an adequate CEO compensation plan, especially retirement components. Gene Zumwalt, EVP, Executive Benefits, Marketing for CUNA Mutual said unfortunately a lot of credit unions are just waking up to what it takes to give their CEO an adequate retirement benefit. What they are going to discover said Zumwalt is an area of the tax code that’s much less friendly than it is for for-profit companies. “Credit unions can’t have stock options. The 457s are more restrictive for credit unions. The deferred compensation programs in banks have a better tax structure,” he said. The primary problem is the amount of money a CU CEO will take ownership of when the plan matures will likely be in the highest tax bracket, meaning much of the plan’s value gets wiped out by Uncle Sam. Zumwalt said there’s no way around this except for the board to consider that when allocating funds. Zumwalt also noted that credit unions can easily pay for any retirement benefits without costing the credit union much money. The credit union basically moves capital into an investment account and lets the earnings provide the benefit. Obviously the earlier the board sets aside money, the longer time it has to grow and big contribution years like Milosevich and others are getting wouldn’t be as vital. Zumwalt said from his experience there are a lot of credit unions that don’t have a pension plan for their CEO, but instead a 401k, like the rest of the CU’s employees have – and that’s problematic. “A 401k plan doesn’t allow enough contributions over the years to get a targeted retirement. There’s a limit on how much highly compensated people can put into a 401k. In almost every case the 401k isn’t going to do it,” he said. [email protected]

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