Changing consumer expectations are pushing credit unions to revisit long-standing strategies, including how they reward leadership. As executives near retirement, boards are prioritizing fresh approaches to compensation to attract and retain leaders with the experience and mindset to reimagine business models for the future.
Evolving executive compensation is a complex undertaking, but one that can be made easier with three key assets: A holistic pay strategy, an executive compensation policy and a thoughtful benefits funding plan.
Holistic Pay Strategy
The first mechanism for easing the complexity of executive compensation planning is an overarching pay strategy for the credit union’s entire team. Absent such a holistic compensation strategy, executive salaries and benefits can become disjointed from the rest of the team, creating a range of issues, from team morale and trust in leadership to governance and succession planning. The latter is especially important for credit unions, as the NCUA has shared its intention to regulate succession planning to a greater degree than it has in the past.
When compensation structures aren’t clearly aligned across roles, it becomes harder to develop internal talent pipelines, let alone attract transformational leaders from outside the organization. Both of these paths to leadership continuity are critical for driving safety and soundness, not to mention innovation and growth.
Creating a holistic pay strategy could be simplified with help from an experienced compensation advisor who can compare a credit union’s current pay practices to its peer group. Importantly for those credit unions looking to breathe new life into the business model, this peer group may be composed of more than credit unions; it may also include banks or fintechs.
Once peer comparisons are in hand, the advisor should explain where the credit union currently falls within its competitive landscape. The board must then decide where it wants to fall moving forward. This decision should reflect not just market realities, but the credit union’s vision for future talent. Whatever they decide, the key is to ensure all pay packages across both executive and nonexecutive roles stay within that designated range going forward.
Executive Compensation Policy
Second, an executive compensation policy may help board members understand the floors and ceilings of possible packages. Without these guidelines, hiring teams are in a less-than-optimal position to negotiate in what has become a highly competitive executive talent market.
As more credit unions attract candidates from banks, fintechs and other sectors, boards may find themselves negotiating with seasoned executives accustomed to formal employee agreements and aggressive offers. These candidates often expect long-term incentives or deal sweeteners that credit union boards haven’t traditionally offered. A well-crafted policy ensures negotiations remain in alignment with the credit union’s holistic pay strategy while also giving boards the tools to negotiate with confidence.
Drafting an executive compensation policy also creates an opportunity to introduce more competitive rewards or establish incentive models. Common in the for-profit banking world, incentive structures tie compensation to KPIs, organizational health metrics or strategic goal achievement. These structures are gaining traction in the credit union space as the movement adapts to the rise of career nomads – high-performing leaders who change jobs frequently in pursuit of meaningful work.
Regardless of the content, executive compensation policies should be grounded in principles, not prescriptions. A rigid playbook that limits the board’s ability to adapt would be counterproductive to attracting and retaining top talent. Rather, the policy should spell out a consistent philosophy that enables mission-aligned decisions. Think of it as compass, not a constraint.
Thoughtful Benefits Funding Plan
The third asset that smooths the path to next-generation executive compensation is a thoughtful funding plan. Often developed in partnership with an executive benefits consultant who understands the credit union regulatory landscape, such a plan ensures the credit union allocates sufficient, flexible resources without overcommitting to a single individual.
Because regulators may limit how much can be invested in higher-yield, nontraditional vehicles to fund executive benefits, credit unions must be mindful in how they allocate those limited resources.
We see this scenario often: A long-serving, high-impact CEO retires, leaving the credit union unable to satisfy the expectations of an equally exceptional successor. In these all-too-common circumstances, the board has committed a significant portion – or worse, the entire portion – of its benefit funding to the outgoing leader.
Strategic investment planning helps credit unions honor past commitments while still having enough in the tank to retain the next generation of leaders.
Pay Strategy That Respects the Past and Prepares for What’s Next
Creating a strategy around executive compensation does more than enable continuity or attract visionary leadership for the future. It also honors the legacy of retiring leaders who often have devoted decades to leaving the credit union industry better than they found it.
With a mission-centered pay strategy for the entire team, a defined executive compensation policy and a balanced funding plan, boards can usher in the next generation with confidence while paying tribute to the people who came before.
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