Third in a CU Journal Series on the Role of Volunteers
OLYMPIA, Wash. — The high-profile addition last year of Washington and Tennessee to the ranks of states that allow some credit unions pay to board members reignited a debate that continues — is it a good idea or a bad idea?
In the 13 states that now allow the practice, only state-chartered credit unions can pay their volunteers; no federal credit unions may do so.
Jim This, president and co-founder of the Paragon Group, an Olympia, Wash.-based CUSO owned by TwinStar Credit Union that is heavily invested in board development, said the "conversation" has been a lively one.
"Some folks are real purists and believe the policy makers should be volunteers, while other people point to the increasing complexity of operating a credit union and say if we are going to increase demands on peoples' time, credit unions need to make it worth their while," he said.
Even though they are paid a fee for their performance, they still would have to be members of the credit union, which, This noted, should allay some fears.
"I do not think board members suddenly will be highly paid outsiders," he said. "Furthermore, I do not think the fee is going to be so much that being a credit union director will become someone's full-time job."
According to CUNA, the decision to offer to remunerate directors is up to the individual states. Jill Tomalin, EVP and chief operating officer of CUNA's Madison office, who oversees CUNA Strategic Services, CUNA Councils and the Center for Professional Development, said the idea has generated a large number of conversations on CUNA's Volunteer Leadership Committee.
"It is important to remember the definition of 'compensation' for directors can be fairly gray," she said. "Compensation is different from reimbursement."
Because the fiduciary responsibility is so much heavier, credit unions are having to look for specific skill sets in directors. People are busy, meaning they might not have the ability to volunteer their time, according to Tomalin. "At CUNA we are still looking at the issue, but it is something that will be percolating for some time."
Evolution Of CUs?
Chuck Fagan, president and CEO of the Credit Union Executives Society, said he recognizes attracting qualified board members is a "challenge" for many credit unions. Because CUs are trying to secure a time commitment and get people to understand the responsibility involved in being a director, he views director pay as "part of the evolution of credit unions."
"The industry has had to adapt to field of membership changes over the years — from employer groups or church groups originally to larger areas," he pointed out. "Board structure has to adapt to changing times as well."
Fagan proposed adopting the concept of being paid for time plus materials, as is common in the construction industry. He noted a painter might charge $20 per hour, plus materials.
"To compensate board members, credit unions might need to pay for a certain number of hours, plus mileage and perhaps an iPad," Fagan suggested.
"Something covering the investment of time, and perhaps to attract someone who has another job and has family commitments. The complexity of the job has increased and it is difficult to attract someone who can understand compliance and other issues."
However, Fagan added, he does not want people retiring from their main careers to become credit union board members "because it is so lucrative."
Susan Mitchell, CEO of Las Vegas-based credit union consulting firm Mitchell, Stankovic and Associates, said paying volunteers is an "interesting development" she is keeping an eye on. Mitchell said if pay becomes involved, there must be a "level of accountability" along with it.
"The idea of having it as an option, if it is used right and with guidelines, then it makes sense," she said. "But it concerns me for two reasons: if you pay without making changes, then people will stay even longer. Second, people will be on the board for the pay, not the altruistic reason of making a difference."
'No Good Reasons'
For Pete Weldon, who is chairman of the board at $206 million-asset 1st Community FCU in San Angelo, Texas, as well as chairman of the National Association of Credit Union Chairmen (NACUC), there are no good reasons to pay directors.
"I personally do not agree with doing so," Weldon said. "This is my 23rd year on the board of 1st Community. I do not want board members to be there strictly for the money. Banks do, but their criteria are a lot different from ours. We are member-owned and the board members are volunteers, which makes credit unions special."
Paragon Group's This worries that paying directors might add more fuel to the bankers who try to say credit unions are becoming more like banks.
"Look at the last 25 years — when we got checking accounts, when we got mortgages — the banks said credit unions were becoming more like banks," This said. "But even a board member getting a fee for their time is not a stockholder."
This said the supporters of paying board members say the practice creates opportunities to attract people who have a lot to offer the community, but are very busy.
"It is true to say all credit unions are striving to get a greater representation from a younger demographic on their board. Credit unions want all kinds of diversity. Many [credit unions] started out 50 years ago serving a particular company, but even though they became a community credit union they do not have board members from the community."
Mark Lynch, a credit union consultant based in Sault Sainte Marie, Mich., specializing in growth strategies, program and product development, strategic planning, board governance, and project management, was born and raised in Australia before moving to the U.S. six years ago.
He was a CU director in Australia for 29 years. He served as the deputy chairman of Australian National Credit Union, which at the time was Australia's largest CU, and later was a volunteer and resources manager with the Australian Credit Union Foundation.
According to Lynch, paying volunteers risks taking away the credit union difference.
"Volunteers are not paid, not because they are worthless, but because they are priceless," he said. "There has been some debate about this topic, and a few states allow credit unions to pay their directors, but credit unions should be very careful. It is important to know why you want to pay directors. Is it to attract younger or 'better' people to be volunteers? In Australia, it did not make any difference in the people CUs attracted. In some cases, volunteers who were ready to retire but found out they would get paid and stayed.
"Do governance reform first before introducing pay for directors," Lynch added.
