THE WOODLANDS, Texas - Whether David Hilton cares to admit it or not, many in the industry view him as sort of a "king maker" for his ability to place people in executive level credit union jobs. It's the ultimate compliment for Hilton and his firm D. Hilton Associates, which has made its mark in executive recruitment in the credit union industry. But today's D. Hilton Associates is much more diverse than just recruitment. It consults on mergers, compensation, provides market research (including mystery shopping), offers retirement and retention services and more. So how did this now venerable firm get its start? It all began with Hilton and his idea that credit union management structures had to change. "When I started out in credit unions, the typical organizational structure of a $50 million credit union and up was very flat. It was a president and then you had VPs of everything-marketing, operations, branches, data processing. What made sense to me was all those VPs were the people who were going to become CEOs in the future," said Hilton, and they would need help finding those jobs. He also foresaw the organizational hierarchy morphing, and it has. Today's sophisticated CUs often have another layer between the CEO and the VPs. "The large credit unions over $500 million in assets have more of a pyramid structure. You have a president, two EVPs and the VPs reporting to the EVPs. A credit union of that size can't have a CEO with 15 direct reports and expect to give them enough attention and time," said Hilton. Hilton understands what it means to be a CEO. He is the former CEO of Fort Monmouth FCU (now First Atlantic FCU) in New Jersey, which has made headlines of late for making bad indirect lending decisions and seeing its capital plummet. Hilton led Fort Monmouth FCU for three years. Prior to that he worked for Bethpage FCU in New York in a position equivalent to an EVP today. His first job out of college was actually with a savings bank. In 1985, Hilton decided he wanted to start his own business, and D. Hilton Associates was born. In addition to executive recruitment, the fledgling firm also helped credit unions with their monthly newsletter. They had success offering a template product that CUs could brand as their own. Hilton also recognized changes in compensation as an opportunity for the future. "We saw a significant situation in compensation. It was an area where there was not enough information for boards to make decisions on what kind of compensation their management team needed," he said. The firm began doing customized surveys to give boards data on compensation so they could pay the market rate and limit their turnover. Fast forward to today and D. Hilton offers compensation data on approximately 85% of the credit unions with $250 million in assets and higher. Hilton sees clear trends in compensation that boards need to be cognizant of. For one, paying for performance is the order of the day. "We're starting to see, and we're starting to recommend bonus plans that put a much greater percentage of an executive's salary at risk. We've worked with credit unions to implement plans that are 100% of salary. So if a CEO makes $200,000, they have the potential to earn another $200,000 in a bonus." This 100% bonus level is much higher than the typical 30% ceiling most CUs put on CEO bonuses. It may seem outlandish to some, but Hilton said credit unions are a business, and every other business provides large incentives to retain executives. The alternative is losing quality talent. Not paying the market rate is another error some boards make in CEO compensation, said Hilton. "When we talk to boards about compensation, we give them a range they should be paying. Some boards are uncomfortable jumping in at the high end. They would rather get the new CEO to the top of the range over a period of three years say. The problem is by the time three years is up, the range has jumped again and they're always behind the curve." Hilton said there are approximately a dozen CUs that have CEOs with compensation packages of a million dollars or more. This may come to light during NCUA's data collection pilot, which will include salary data. "It could be eye opening for some credit unions." Retirement and retention services are now one of D. Hilton's largest areas of business. "With the whole baby boomer situation, so many people are retiring. Boards that want to retain management have to put golden handcuffs on them. For a credit union, as a nonprofit, the only way to really do that is a Supplemental Executive Retirement Plan," said Hilton. These plans can be designed to give CEOs more money in retirement based on how long they stay on the job, thus trying to handcuff them for a few more years. "They can be very lucrative, giving a CEO say 65% of their salary at retirement. That's significant." These retention strategies are particularly important today with half of credit union CEOs at CUs over $100 million expected to retire in the next five years. Hilton said when a CEO of a large CU leaves, it actually affects four credit unions and four individuals. "There's a domino effect. When a billion dollar credit union loses their CEO, someone from a $500 million credit union goes to the billion dollar one. The exec from the $250 million credit union goes to the $500 million and down the line." Merger Mania D. Hilton has consulted on approximately 50 mergers, and Hilton expects many more. "It's one of those things that even if there aren't a lot more mergers, there has been a lot more discussion and exploration of mergers. It's for a number of reasons. It's really difficult to compete with the large regional and national banks if you don't have the branch network or marketing dollars." The firm has consulted on mergers of CUs with just a few million dollars in assets all the way up to a deal that was over $2 billion. The biggest issue is the integration of the two credit unions from an employee and cultural point of view. If we spend 100 hours with the two boards, 50 of that has to be on the need to understand your counterpart at the board level. If it doesn't work from a social and philosophical point of view from the board level, it's not going to work." Hilton said unfortunately many mergers fall apart because of board politics. He believes CEOs need to lead the charge in mergers. "We suggest that one CEO talks to another CEO and finds out what the plans are. But I'm not suggesting they do it without board approval." D. Hilton will also play the broker role and explore potential merger partners for a CU. If a deal gets done, it can handle the balloting as well as the marketing and communications aspect, something Hilton believes is huge. "This is a small industry, you have to communicate. It's not going to take long for the employees to know what discussions are going on behind closed doors," he said. A Mature Business D. Hilton Associates isn't the mom and pop firm it was when it started in 1985. Today it has over 50 employees and has 1,200 clients, with 70% repeat business. It's just shy of being a $10 million business. "I never envisioned this to be as big as this is, and never thought we'd have anywhere near the number of clients," he said. "Our original business plan didn't have any real numbers to it. We never thought of numbers, we just thought of creating a service for credit unions." For Hilton, the business is a family affair. He has been working side by side with his wife Debbie for the last 12 years. They have been married 22 years. The two actually met in the exhibit hall at a credit union conference in Phoenix in 1982 and got married in Reno in 1985 during a credit union conference. "We invited about 15 of our friends from the industry and got married in one of those chapels for $50, the best $50 I spent." The couple has two children, Sarah, 19, who is in college, and Matthew, 14. Their passion outside of the office revolves around family and travel. "We both do so much traveling for work, but oddly enough what we like to do as a family is travel. We've been to numerous countries and islands. We're so close to Mexico, so we venture there a lot," he said. Hilton logs about 250,000 miles of travel a year. It's not the glamorous life people think, he said. He recalled being stuck in a hotel in South Dakota for two days during a hostage standoff. "I missed my credit union appointments because of it. When I finally got to check out, the attendee tried to charge me for the two nights of the hostage standoff. I said you have be kidding me." The clerk of course conceded. Hilton also has a book collection, mostly mystery novels, numbering close to 1,000. "Most are first edition, many are signed." He is an exercise buff, working out daily, and has run a few marathons. His most exciting upcoming sports outing is playing in a Michael Jordan tournament in Las Vegas. The four-day event, for charity, exposes participants to legends like Jordan, Bill Walton and professional and college basketball coaches. Looking forward, Hilton expects the credit union industry to stay strong, but go through heavy consolidation. "I think we'll be half of where we are today with about 5,000 credit unions. Credit unions are still a minor player in the financial services market." [email protected]