Presence Of A CUSO Plays Big Role In Credit Union CEO Compensation

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As credit unions increasingly expect more from their executives, in the form of higher levels of education and the ability to manage much more complex institutions, those executives are also coming to expect more from their credit unions, as evidenced by CUES 2003 Executive Salary Survey.

"In 1991, 40% of credit union executives had a college degree. Today, nearly 80% have a four-year college degree or higher," said CUES VP-Professional Development George Hofheimer. "Credit unions are requiring more formalized education than in the past. This is not surprising, because the complexity of these institutions has increased."

Level of education typically does come into play when compensation levels are set, and one reason more CUs are putting a premium on executives with higher education backing them up may be that the job of running a credit union has become more complex. In addition to credit unions growing in terms of sheer size, they are also getting into more diversified areas of business member business services, indirect lending, real estate lending and other more sophisticated offerings.

Correlation Seen

Also adding to the potential complexity of running a credit union is whether or not a CUSO is involved. Hofheimer said CUES has found a correlation between having the presence of a CUSO and a higher salary.

"One of the things we've been trying to track is how CUSO ownership affects compensation," he related. "It's difficult because there's no one definition of what a CUSO is. They can serve a lot of different purposes, and they can be owned by one credit union or many credit unions. But CUSO ownership is one area that has the opportunity to break all the rules of compensation in the credit union world."

In credit unions with assets greater than $400 million, the average base pay for the CEO was $230,842, with a total compensation package coming in at $276,844.

Of those 138 CUs in that asset size that participated in the survey, 95 had a CEO with a CUSO executive, and 43 without a CUSO executive. Those CEOs with a CUSO outearned their non-CUSO counterparts. Those without a CUSO earned an average base of $215,589 compared to $237,746 for those with a CUSO.

But the more dramatic disparity shows up in total compensation, when bonuses and incentives are figured into the equation. The CEO without a CUSO earns an average $218,965 in total compensation, compared to $289,417 for average total compensation earned by CEOs with a CUSO.

These figures point out the increasing importance of "at-risk" pay in the credit union compensation world. "The number of credit unions using bonuses and incentives tends to increase every year, as it has for several years," Hofheimer noted. "As credit unions focus on the financial performance and growth of the credit union, they are using at-risk pay to incent for those results. Fifty-five percent (of survey respondents who said they receive at-risk pay as part of their annual compensation) said the primary factor (driving the amount of the bonus) was earnings. Let's face it, credit unions have no other means of raising capital, so they live or die by earnings growth."

The trend toward greater levels of education, higher salaries and use of at-risk pay may be among the few areas where emulating banks isn't such a bad idea. And as credit unions tap former bank personnel for executive positions, credit union land may seem more of the same in the years to come.

The Role of Ex-Bankers

"We don't survey for this, so this is just my personal opinion based on anecdotal evidence," Hofheimer observed, "but one reason that banks have been using at-risk pay longer than credit unions is that it is a natural part of the banking perspective. Incentives like stock ownership are naturally built in, particularly at community banks, where it's not uncommon that the CEO and the board are the major stockholders. I think the shift in credit unions is largely the result of external environment. Before, credit unions operated in a much more insulated environment, especially single-sponsor credit unions, for example."

And it's not just former bank executives entering the credit union community. "Anecdotally, we see that we have CEOs coming from the banking industry, but it's also people coming from the corporate world to the credit union world," Hofheimer commented. "For example, you've got credit unions that serve a company, and then you see executives from that company making the leap over to the credit union."

In other findings coming out of the survey, executives in charge of e-commerce continue to see an increase in their compensation levels, despite the "dot.bomb."

"It's not at the same level as during the boom, but we're still seeing higher compensation levels for the executives in charge of e-commerce initiatives," Hofheimer offered.

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