An ongoing evolution of industry practices is pushing more credit unions and their boards to define, and periodically refine, their compensation philosophies. As they seek to recruit and retain top-tier talent, it's vital for cooperatives to ask why they are paying a specific way and start with their overall strategy in mind when making decisions related to compensation.
Emerging and Common Rewards Practices
There are many components to consider within the realm of compensation. Here are just a few of the common examples we're seeing as we work with credit unions nationwide. In addition to long-standing categories such as bonuses, new types of benefits such as tax accountant services are becoming more commonplace. These types of relatively minor perks can remove headaches, allowing executives to focus more of their mental energy on driving organizational performance.
Depending on your strategic goals, choosing a single approach, a mix of several, or even individualizing plans for key leadership roles may make the most sense. Whatever the path forward, your compensation philosophy should also apply to the benefits side of the equation.
When to Refine Your Philosophy and Policy
If developed and implemented correctly, a compensation philosophy should stand the test of time. However, there are trigger events that might necessitate a review or even a revision such as a global pandemic, merger or key leadership change. At these milestones, it's helpful to ask:
Are your current philosophy and practices enabling or impeding your strategy?
An independent, strategic advisor can assist you in defining or evaluating your compensation philosophy and policy. Compensation research, which is typically conducted every one or two years and should include multiple sources, can help a credit union better understand where they stand relative to the market. As publicly available data is not widespread and CEOs tend to talk to each other, it's vital to integrate the latest research into a broader philosophical context and ensure it aligns with your strategy. That context should also include an intentional exploration of stakeholder objectives, including a CEO or other key leader's desires.
Exploring Current Candidate Expectations
Increasingly, Supplemental Executive Retirement Plans (SERPs) are an expectation of C-suite candidates. Benefits like these are a key part of what attracts high performers to new opportunities or helps retain them.
The most common types of SERPs are 457 (f) plans and Split-Dollar. Designed strategically, these can be effective retention and recruitment tools. To truly understand the pros and cons of the many options available, you may want to enlist the help of a benefit design specialist to create a new plan or enhance an existing one. From a recruitment standpoint, a generous plan that pays out in the long-term does not always retain the high-performing executive that is enticed with nearer-term payouts at another organization. Design specialists help reveal those nuances to ensure the plan has the intended effect.
Taking a Needs Based Approach to Benefit Plan Design
As we consult with credit union executives, it's clear that one size does not fit all in terms of executive benefits plans and that fully understanding the impact of potential SERP options is key. Blending traditional plan design concepts with present-day strategies, while considering the needs of the individual, is vital to meet the unique needs of each organization.
Executive benefits plans should complement existing incentive structures and take both individual and organizational objectives and time horizons into account. The financial impact of the plan, on both the credit union and the individual, should also be considered. This includes P&L, cash flow, executive taxation, potential excise tax to the credit union and the long-term nature of cost recovery strategies.
Staying Competitive in a Changing Landscape
Keeping pace with the industry and remaining attractive to both current and future leaders, who are vital to the long-term success of any credit union, should begin with your institution's strategy. Start by defining your objectives before you jump into evaluating specific plans.
Remember, compensation philosophies and executive benefits plans can be highly flexible in their design. Employers have the discretion to structure their philosophical approaches, policies and specific plans in ways that align with the organization's goals and the needs of the executives.
Tom Sievewright is Director, Executive Benefits for ALM First Executive Benefits.
Peter Myers is SVP for DDJ Myers, an ALM First Company.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.