Almost 15% of the largest credit unions in the nation lost money last year and more than 20% experienced negative loan growth. If your credit union was fortunate enough to make money or grow loans, then congratulations and condolences are in order.

You are now officially on the radar of almost 1,500 credit unions that covet your CEO. Today's environment suggests that boards need to formally evaluate their CEOs' performance, and update salary, incentive and retirement plans to keep their top talent.

While most credit unions provide an annual salary increase for their respective chief executives, 30% do not have a formal review process for their CEOs' performance, almost 40% don't review their CEOs' retirement plans on an annual basis and more than half find their incentive plans to be difficult to maintain. Reviewing and maintaining your CEO's compensation, incentive structure and retirement plan are essential to inspiring top performance.

Based on our experience over the last 30 years, here are five reasons why credit union boards fail to perform annual performance and compensation reviews and incentive plan and retirement benefit updates:

1. CEO is too close to retirement.

Even if your CEO is close to retirement, not placing him or her at the proper compensation level or providing competitive retirement benefits can be detrimental. It can lead to poor hiring choices. If the board doesn't commit to a competitive package for the CEO, then the next layer of existing executives may not get a competitive package.

If the intention is to save money, the strategy can backfire quickly once one executive leaves the credit union for a more lucrative position. This can leave a vacancy in a crucial position with the CEO unable to hire the top outside talent.

2. We are already paying enough.

“Enough” is a relative term. When enough is defined by a director's current or past employer, the comparison can be misleading. The market for a credit union CEO is set by the credit union industry using nationwide salary ranges, not the sponsor or local economic conditions.

3. What will our members think?

In most cases, a CEO will make more than the average member. However, this is the situation in most businesses. The board's responsibility to the membership is to make sure they hire the highest-performing CEO available. A willingness to commit to market competitive pay and retirement benefits gives the board a chance at continuity, which is a major factor of employee and member satisfaction.

4. Collecting the data is time consuming.

The market moves daily as CEOs are hired and fired throughout the year. The most important responsibility of the board is managing its only employee – the CEO. If you are unwilling to review your CEO's compensation and retirement structure annually, there is a good chance you will lose your executive.

5. We just reviewed the retirement plan.

Retirement plans need to be continually reviewed. IRS rules and federal regulations change and the funding amount can vary from year to year. You don't want to be in a situation where your CEO is ready to retire and the plan is out of compliance or significantly underfunded.

Using a third party can be useful for not only designing and implementing a retirement plan, but also maintaining it and ensuring it is compliant.

Debra Hilton is EVP at D. Hilton Associates Inc. She can be reached at Debbie@dhilton.com or 800-367-0433.

Instant Insights /

5 Reasons Why Boards Don't Do Annual Reviews

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