Differing Views on Executive and Director Pay, Conversions and Going Green

HONG KONG -- A credit union leader from Australia and one from the U.S. put their heads together in a wide ranging discussion touching upon a number of hot button CU issues.

In a moderated conversation before attendees at WOCCU's 2008 World Credit Union Conference, Phylip Doughty, CEO of MECU Ltd., Australia, and Tom Dorety, CEO of Suncoast Schools Federal Credit Union and CUNA chairman, touched upon the disclosure of CU executive pay, the idea of paying CU directors a salary, differing policies toward CU to bank conversions and making credit unions greener.

Australian credit unions disclose the incomes of their board members and senior staff in an aggregate manner and in bands, as Doughty explained. Thus, a credit union might report that it pays its five senior executives, as a group, between A$100,000 and A$600,000, for example, and not disclose anyone's precise salary.

This is in sharp contrast to the way the topic has been handled in the U.S. In the U.S., a few CUs voluntarily disclose executive pay and some state-chartered credit unions must do so. But federally chartered credit unions do not disclose their executive pay and the U.S. credit union trades are on record opposing any regulation to do so.

For his part, Dorety said that the way Australian credit unions address disclosing the income of credit union executives and board members might provide a compromise model in the U.S.

Dorety made his remarks after reiterating CUNA's opposition to disclosing income from credit union CEOs. But after the end of the event and speaking for himself, Dorety acknowledged that changing standards of openness and increased transparency might make it very hard for credit unions to resist some degree of disclosure.

"If you look at where trends in this area are going, it seems unlikely that we can just dig our heels in and say we refuse to open up," Dorety said, even as he acknowledged that a limited approach as they have down under would give some credit union boards of directors heartburn.

Another point of difference the two executives explored dealt with the notion of paying CU directors. Many Australian credit unions pay directors and Doughty said that the trend, in his view, was firmly fixed in that direction.

Doughty said the move to pay directors had its roots in the regulations and laws that both banks and CUs in Australia share. Meeting that regulatory burden has required Australian CU directors to possess a degree of expertise and experience that would be impossible to attain without paying them.

Dorety countered with the U.S. credit union belief that, so far at least, volunteer boards of directors are able to hire the outside professionals they need to help make the decisions they consider.

The conversation then moved to a discussion of differing policies toward converting credit unions from cooperative to for-profit basis.

Demutualizations are not unknown in other parts of the world, but the U.S. may be the only country that does not mandate that the equity of the closing credit union be distributed to the CU's members as part of the process.

"That's bloody outrageous," blurted Doughty after Dorety explained to conference attendees the U.S. policy of transferring the equity of the closing credit union to the new corporation and offering CU members only the opportunity to buy shares of it.

"You're telling me that these buggers keep the earnings and then make CU members buy back what they already own," he said, incredulously to Dorety. "Don't ever complain to me about regulation, mate. Your lot clearly don't have any regulation at all!"

Doughty had explained that in Australia, a credit union that demutualizes must return the equity as shares back to all the members who often benefit additionally if further reorganizations increase the value of their shares. In one recent case, Doughty said, shareholders from a former CU that demutualized saw their shares increase in value several times.

He said that Australian credit unions strove to keep the members in touch with the value of their credit unions because it was always a minority of credit union members who were most invested, in the form of loan commitments, in keeping their CUs as CUs.

"When you hold a couple of loans at interest rates 40 basis points below competition, you have a definite interest in keeping your credit union a credit union," he said. "But if you don't really hold any loans any longer, you might not feel the same way."

Finally, Doughty said that focusing on environmentally sustainable operations and lending policies can both save CUs money and provide them an avenue to younger members.

Doughty told attendees that his credit union has benefited from offering members low-interest loans to make water and power improvements to their homes. The CU also plants trees to offset the environmental impact of cars it finances and contributes to a land bank to offset the land used in homes it helps build.

MECU has also sharply reduced the solid waste it produces, Doughty said, and even composts scraps from the CU's cafeteria and uses the compost on its own landscaping and gardening so the CU no longer purchases fertilizers.

Doughty told attendees that the CU has benefited as well from a lot of employee support for the policy as well as increased member interest and business.

"Make no mistake, our members first want the best deal for their hip pocket," Doughty said. "But if we can offer competitive products which also have this green dimension, that will win their business and their increased loyalty," he added.

--dmorrison@cutimes.com