CHICAGO-Credit union leaders should increasingly expect their salaries will be tied directly to the performance of their CU-not that they'll be seeing pay increases in coming years.

According to one credit union CEO, it has become almost "politically incorrect" to draw a paycheck. "That's what it feels like," explained Jan Roche, CEO of the $1.2-billion State Department FCU in Alexandria, Va. "A lot of the conversations I hear now are around how do I hold onto what I have, instead of how can I make more."

Elements Driving Change

Shrinking ROA, as well as public backlash against some of the banks' comp practices, are forcing change. Roche said she is aware of perks like country club memberships being replaced with "less glitzy" incentives, such as including a sabbatical in a contract.

Roche, and three other industry experts, shared their perspectives on CU executive compensation during a panel discussion at NAFCU's 43rd Annual Conference.

Variable executive pay tied directly to the performance of the credit union accounted for 15% of executive salaries in 2009, and is expected to increase by another 9 percentage points in 2010, according to Loretta Dodgen, principal at Human Capital Solutions Group. "There is a growing trend to tying salaries to strategic goals. That used to be way down on the list as a factor in determining variable pay. But for credit unions in 2010, variable pay tied to strategic goals will fall just behind variable pay tied to loan growth. This tells us credit unions realize they have to think more strategically."

In setting salaries, credit unions must exercise greater due diligence, including making sure logic behind a compensation package is explained to the board. "You should tape that discussion," Dodgen said. "Some day you may be required to explain your thinking around how you set your executive compensation."

Simply presenting a comp package to the board for review is not enough anymore, stressed William Adler. The attorney at the Glendale, Calif.-based Styskal, Weise & Melchione, referred to the growing number of lawsuits against financial institution boards, and said his firm is seeing greater regulatory review of executive compensation at troubled CUs. "You need to evaluate from the market what is a reasonable compensation package. And you should also work with consultants, CPAs, and attorneys."

Chris Burns-Fazzi, principal at Burns-Fazzi, Brock in Charlotte, N.C., pointed out that boards will have to be provided with greater education around compensation guidelines, as well as training to ensure they have a better understanding of the balance sheet. Burns added that for comp packages to be effective at retaining top talent, they must be tailored to the generation of the individual receiving the benefit. "Packages should be different for Boomers than for Generation X," she said.

Subscribe Now

Authoritative analysis and perspective for every segment of the credit union industry

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.