If your paycheck shrank a little last year, you're not alone.

“The 2010-2011 CEO Total Compensation Survey” from CUNA shows total credit union CEO paychecks slumped 3.5% in 2009, mainly due to a reduction in variable pay. Overall, 39% of CEOs at credit unions with $100 million or more in assets received a bonus or incentive reward in 2009, down from 73% in 2008. The median amount awarded was $16,345, compared to $26,000 in 2008.

Because credit unions cannot provide equity vehicles such as those offered in publicly traded companies, base salary is the biggest hunk of the total compensation package for credit union CEOs. Base salary typically accounts for 86% of CEO total compensation among credit unions with $100 million or more in assets.

“As of Jan. 1, 2010, median base salary among these CEOs is $185,496-3.6% below the 2009 figure,” the study reveals.

The study also suggests it's time for credit unions to take a close look at their executive compensation plans.

“While executive compensation reform is targeted toward publicly traded companies, experts advise nonprofits to be prepared for similar requirements and to implement SEC disclosure rules when making pay decisions.”

“Furthermore, to proactively comply with executive reform measures-and to avoid a poorly designed compensation package-credit unions should review their executive compensation plans,” the authors cautioned.

Changes in variable pay plans can have a definite impact, said Beth Soltis, CUNA senior research analyst.

“In fact, if CEOs are eligible for variable pay but don't receive payouts and perceive the cause to be external market factors which they cannot control, the result can be diminished motivation and a greater likelihood for them to seek opportunities elsewhere,” she stated. “As business performance improves, credit unions will need to evaluate their variable pay plans-and their ability to produce payouts-in order to reward and retain their CEOs.”

If you're looking for some good news, you can check the latest CUES comparison of credit union and bank CEO compensation. The CUES “Executive Compensation Survey” found CEOs of credit unions with $250 million or more in assets actually beat their community banking counterparts on average in terms of both base salary and annual bonuses.

Among the largest financial institutions, credit union CEOs earned a median base salary of $390,270, compared to $389,400 for their banking peers.

Kevin Kaeding, president of Kaeding Ernst & Co., benefit brokers and consultants, puts the issue of CEO compensation in perspective.

“Because of the yield curve, it's not business as usual,” he said. However, he doesn't believe CEOs are as eager to move on to another jobs as studies indicate many workers are.

“I don't think I see that in the ranks of the CEOs. Credit unions are a very specific world. I don't see that many [CEOs] are preparing to move on.”

However, he continued, lack of a solid retirement plan could indeed prompt a CEO to start looking.

“In our business we tend to focus on providing supplemental retirement plans. That's still a key concern among all executives, and certainly among CEOs.”

Kaeding noted that when he went into the business 30 years ago there were defined benefit plans everywhere, including the world of community banks and credit unions.

“Not so today,” he said. “In many cases we've seen very, very modest compensation increases. But we've also seen the situation where if an executive doesn't have a supplemental retirement plan, that's when an executive may really look at other opportunities.”

If a board does need to find a successor, it may discover the talent pool is not as deep as it might have thought. As credit unions have grown larger and more sophisticated, the skill set needed by the CEO has also expanded.

John Andrews, executive vice president/compensation at D. Hilton Associates, doesn't see a lot of commonality in CEO pay structures.

“The main driver right now is capital position,” he said. “CEOs are not being singled out.”

A credit union struggling with its capital position may avoid filling a vacancy when someone leaves. But it may pay a premium to hire a CEO who can help them fix its problems.

“We see a lot more boards concerned about reasonableness of compensation levels. They're putting together performance standards so they can demonstrate to regulators and the membership that the pay is reasonable. That's been really strong in the past two or three years,” Andrews said.

From the CEO's perspective, an executive taking over a financially challenged credit union will be looking for some security. The CEO wants well spelled-out retention and severance packages. Or the executive may ask to be made whole when it comes to benefits if they move from Job A to Job B.

“One of the things we're telling boards right now is that documentation is their friend,” Andrews indicated. “They need a formalized pay philosophy and need to document their compensation plan. It's not so much the dollars, but how you deliver the dollars and a clear history of why decisions were made.”

Perhaps that's part of the reason CUNA found 45% of the CEOs of credit unions in the $100 million-plus ranks have an employment contract. Sixty percent of those contracts were required by the board.

Andrews' advice is pretty much echoed by Paul R. Dorf at Compensation Resources Inc. Dorf lists on his website seven specific steps he believes can improve current pay programs:

Move from discretionary bonuses to results-oriented incentives. This requires appropriate realistic goal setting that balances both quantitative and qualitative measures.

Clearly define expectations and hold executives accountable for their successful completion.

Balance short-term and long-term decision making by introducing complementary plans so “all eggs are not in one basket.”

Add sufficient checks and balances to incentive plans to ensure awards are justifiable.

Institute circuit breakers to all plans that prohibit payments under certain circumstances.

Institute claw-back provisions in the event problems are uncovered after the fact.

Communicate effectively.

–ecourter@cutimes.com

Instant Insights /

CUNA Survey Finds Paychecks Shrank Along With Bonus Awards

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