Industry observers are split over a recent survey's claim that the compensation of credit union chief executives closely tracks the size of an institution's membership.
In a recent study for the Credit Union Executive Society, a Michigan consultant said membership has been more important in determining compensation than other benchmarks such as a credit union's asset or loan portfolio size.
Gary Morehead's findings, based on 1994 and 1995 data, were released last month in the "1995 Compensation Manual." Mr. Morehead is president of Koch-McNabb Resources in Southfield, a Detroit suburb.
But other industry experts, including number crunchers at the largest trade group, said the findings are off and that asset size is king.
Mr. Morehead was at a loss to explain why membership size had become, for the first time, preeminent in determining chief executives' compensation. But he said credit unions would be wise to change course because the strategy could hurt profitability.
"It's important in today's environment for credit unions to compensate chief executive officers based on effective uses of marketing to reach members," he said. "It's possible to bring on large numbers of members who are actually a drain on the institution for two to three years before their accounts become profitable."
But Jim Ray, chief operating officer of Callahan & Associates, a Washington-based consulting firm, said the relationship between membership and compensation makes sense.
"As an indicator of the quantity of work, the size of membership is a good one," said Mr. Ray, himself a former credit union executive.
Over the past year, average pay for chief executives fell 6.1% at credit unions with less than 5,000 members while it rose 9.4% at credit unions with more than 80,000 members, according to the survey, which involved more than 500 executives from institutions of various sizes.
Until 1994, the size of a credit union's loan portfolio or assets was the primary basis for executive compensation.
Mr. Morehead said the industry should return to the old ways.
"What credit unions need to do is concentrate on service usage levels," he said. "It's best for the industry if compensation is tied to such variables as loan portfolio size, asset size, or the number of employees."
But some observers rejected the premise that the industry stresses membership in determining compensation and questioned the validity of Mr. Morehead's findings.
Chris Cardwell, managing partner of the Cardwell Group, a management consulting firm based in Westlake, Ohio, said he has found that asset size generally dictates executive compensation.
"I'm a little surprised (the study) is tracking membership size so closely," he said. "There could be an anomaly in the numbers."
He also differed with Mr. Ray over the significance of membership size on management's workload.
"More members doesn't mean there'll be more work or services," he said. "Asset size is a better indicator."
Indeed, the Credit Union National Association found that asset size, followed by the size of the loan portfolio, was the driving force behind executive pay.
The findings were based on a sample of 1,000 credit unions of all sizes that the association tracks, said Karen Oetzel, manager of marketing research for the Madison, Wis.-based trade group.
