Should Members Know How Much Their CEO Is Paid?

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Do members have a right to know how much the president of their credit union is being paid?

If you're a credit union CEO, as most of the readers of The Credit Union Journal are, it's likely your answer is a resounding "No! Now, let's move onto something else." It's an uncomfortable topic and, unless it's to gripe about being underpaid, it's not a subject credit union CEOs like to talk about. Get ready to talk about it.

Already fueling some talk is a story originally broken by the Eugene, Ore.-based Register-Guard (see story, page 1), which reported that the planned merger between Portland Teachers Credit Union and Oregon Community Credit Union (Eugene) was scuttled not because of cultural conflicts, as the credit unions claimed, but because of questions raised by the compensation allegedly paid PTCU CEO Cliff Dias-$1.5 million annually.

If that's true it's good news for Mr. Dias but potentially troublesome news for every other credit union CEO and manager in the country.

America's credit union community remains several decades behind in coming to grips with how size and success have changed it. Attend any credit union trade association meeting and listen to their executives speak and you'd swear it was 1954, we all like Ike, and that the biggest threat to credit unions is losing young members to the lure of that subversive rock-and-roll music.

But it's 2004. And the little co-ops that could, have. For most of their existence credit unions were so small that no one individual could really benefit financially from them, unless they were embezzling. No more. There are nearly 100 credit unions of $1 billion-plus in assets, and hundreds more of in excess of $100 million in assets. Why didn't we see conversions to mutual savings bank (and then commercial bank) charters until the last decade or so? Because there wasn't much in the way of profits and capital for insiders to plunder. Now there is.

The conversion opportunities and the rising credit union profile have caught the eyes of many outside credit unions, and it's likely so will this issue of CEO pay as two powerful forces combine. And both are outside the control of credit unions. The first is the bank trade groups, still stinging over NCUA's recently proposed rules making it tougher to convert charters (not that the bankers really need any reason). The second is ongoing coverage of corporate scandals that have dominated the news. I'm not suggesting Mr. Dias' compensation is scandalous-although it is four times the peer group average of $356,651 for credit unions of $1 billion or more in assets, according to the latest survey from CUES. But "corporate governance" is the new buzz-phrase, and indeed regulators reportedly flagged the proposed merger between PTCU and Oregon Community for just that issue.

Credit unions must recognize that the general public simply isn't going to give them a pass on this issue because CUs claim to wear a white hat; the public, the media and elected officials are going to lump credit unions in with all other companies and corporations. And they're increasingly going to demand to know what's under that hat.

As Register-Guard reporter Joe Mosley observed, "Another classic business issue also appears to have played a role (in thwarting the merger): lavish executive compensation, and an organization's reluctance to disclose these big paychecks to its shareholders..."

I don't think anyone was thinking of CEO pay when both of NCUA's board members talked about the importance of "full disclosure" to members during the vote on conversion rules. But you can bet some members (and bank trade groups) are going to start asking.

Bill Clinton may be best suited to settle this issue, as there's a good argument to be made from both sides. On the one hand, CEO compensation is a private issue, and members have elected a board that is charged with ensuring CEO pay is fair but not out of line. On the other hand, CEO pay should be disclosed, as credit unions claim to be democratic, member-owned institutions, and the member-owners have a right to know. Perhaps we'll someday see a compromise in which credit unions are required to disclose in their annual reports how the CEO's compensation compares with peer group credit unions.

The Register-Guard reported that Oregon's director of the Division of Finance and Corporate Securities, Floyd Lanter, wrote in an e-mail reviewing the proposed merger, "Any independent party looking at these (compensation) agreements could easily conclude that the directors and executive officers of (Portland Teachers) have placed their interests ahead of the members. We are certainly led to that conclusion."

The credit union tax exemption rests in large part on the notion that the interests of all members come before those of any individual. The credit union community survives only as long as the interests of the whole come before any one of its individual CUs.

Ultimately, it will be up to the members of any credit union to decide what is appropriate. The question of how CEO pay fits into good corporate governance within credit unions should be discussed now-because credit unions are going to have to respond to it later.

Frank J. Diekmann is editor of The Credit Union Journal.

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