LAKE BLUFF, Ill. — Many credit unions are at least 50% over-staffed, says one industry analyst who suggests that now is the "perfect time" to do something about that.
"Credit unions do not realize they have a golden opportunity to say, for the first time in decades, I have too many employees," insisted Mike Moebs, CEO of Moebs $ervices. "We are in the financial perfect storm of the past 80 years, and now is a time for credit unions to finally bite the bullet and reduce headcount or make staff more efficient."
Moebs' comments echoed those of Brett Christensen of CU Lending Advice, who made a similar argument calling on CUs to examine their ratio of loans-per-employee during Credit Union Journal's recent Grow Show.
An economist by trade, Moebs believes that most credit unions are at about $2 million to $3 million in share dollars per employee, but should be at $6 million in share dollars per staff member. It's a critical time for many credit unions to evaluate their work force and growth objectives, Moebs said.
The first thing to do is determine how the credit union's staffing levels match growth objectives, and that decision is based on economy of scale, reminded Moebs. CUs, he said, need to avoid the grow-at-all costs mentality, without first determining at what point that growth no longer leads to greater economy of scale. Credit unions that are efficiently staffed will take longer to reach their optimal economy of scale, which gives them greater room to grow, he said. While CUs with too many employees will reach their efficiency plateau more quickly.
Reaching Economies of Scale
"The point at which most credit unions reach their economy of scale is between $450 million and $1 billion, Moebs said. "Once you hit that, what you will find is that you might have a period of time, maybe two or even three years, in which your operating costs are not rising. Then all of a sudden your costs take off."
Credit unions need to be aware when this occurs so they can change their strategy from grow at all costs, and focus on efficient growth, Moebs said, to avoid the "spindizzy. It's like a space capsule spinning and yawing. It's going in a particular direction, but you don't have complete control over it."
It can be difficult to right the spinning ship and the "diseconomy of scale" once that's started, said Moebs. "Because the strategies that got you there become so embedded into the culture of the organization, and you have so many more employees than you should have that it's hard to cut the number back."
Moebs compared the challenges credit unions face to grow efficiently once they have achieved economy of scale to top athletes who have to find ways to continually improve to remain competitive. Moebs used the example of National Football League great Jerry Rice, who had to rely on intellect and strategy as much as his physical skills as he aged. The same is true with credit unions, Moebs asserted, "They have to find ways to get more out of their employees."
That effort begins with a retention strategy. "Retention is the key to the situation," Moebs shared. "Look at the teller line. If I have very little turnover, I can make my people even more efficient. If they become more efficient, I can pay them more. And if I can pay them more they stay with me longer. It becomes the dog chasing its tail, which is what you want."
Credit unions that do not employ a staff-retention strategy are in a constant and costly state of change, according to Moebs. "Constant turnover and constant training. I think most credit unions are happy if they are only turning over half of their teller staff in a year. Many are near 100%."
The "guiding light" for CUs with low expenses, contended Moebs, is little or no teller turnover.
"I was recently in a credit union in Florida and another in Wisconsin and both had not replaced their tellers in seven to nine years," he said. "These are $100-million asset credit unions. Their tellers are highly paid-making $35,000 to $50,000 a year. Credit unions will ask, 'How can you pay that much?' Well, if you don't replace tellers for seven years, and they are producing three to four times what a normal teller does, I am way ahead of the game."
Just as important as identifying the point of optimal economy of scale, is the matter of job functionality. Moebs insisted that for CUs to get the most out of their work force, they need to separate employees with empirical and analytical skill sets-have the tellers focus on transactions and the sales people on selling, and then recognize and compensate them for high performance.
Qualitative Skill Sets
"Tellers are analytically trained and for the most part have an empirical skill set," Moebs said. "To slap a big button on them and ask them to sell IRAs is not the most efficient decision. A sales person's skill set is qualitative. It's very difficult to find people who have both, and usually people with both skills are not as effective as the person who has only one of those traits. The 21st century thinking is that tellers are production people who are going to handle 1,000 to 1,500 items a day and do that with a smile."
Moebs reiterated the opportunity the economy has presented credit unions to address staff efficiency. Doing so will have a significant impact on long-term growth, he said. "We have to know where we are in the whole expense control scheme. And the way we know that is by knowing where we are in our economy of scale and recognizing that if I get to that economy of scale sooner with high expenses, I am going to have a tougher job ahead of me than if I get to it later with low expenses."
