ANAHEIM, Calif.-Business is all about a competition for resources, but credit unions were advised by one expert that emphasizing a particular benefit does not necessarily help it attract talent.
Kristie Summervill, CEO of Wichita, Kan-based consultancy Balanced Comp, told attendees of the recent CUNA HR/TD Council Conference here credit unions should have a balance of base pay, incentives and variable pay. She offered Executive Compensation Solutions, Los Angeles, as a "good source" for information on executive benefits in the CU movement.
"I have a sense most credit unions invest heavily on benefits," she said. "The key is to be at market on benefits, because every credit union competes with other credit unions, banks and the market at large. If there is something about its core values that moves a credit union to be above market on any particular benefit, keep in mind it usually does not help a credit union compete."
In addition to "correct pay mixes," Summervill said every CU needs a written salary administration guideline. This is related to a trend she has spotted in recent years: Many credit unions are moving away from company-wide bonus plans if the CU achieves its goals to fewer people sharing in the bonus.
Another tip: Kill the word "fair" when talking about compensation, as it leads to value attacks. Replace it with "equitable." That way a CU can be different without being "unfair."
"A credit union's salary philosophy should be clearly communicated and the framework for decision-making should be clarified," she said. "If you are going to rely on salary surveys, be sure to use surveys with sufficient samples sizes. Be aware every incentive plan has risks and needs regular audits."
To incent means to motivate, Summervill continued. She said incentive programs are designed to encourage specific outcomes, such as helping the organization. But if employees do not know how much incentive is available, or what they need to do to achieve a certain level, those actions violate motivational theory. Similarly, if people feel they have no control over an outcome, they are not motivated.
"The first goal should be corporate goals," she said. "Every board and CEO should know by February what the CEO's base salary should be, as well as incentives based on achieving defined goals. If deliverables are higher than market, then bonuses should be higher than market."
When calculating bonuses, Summervill said different goals have different weights for different job titles. For example, a VP of lending would be much more accountable for delinquency and charge-off ratios than the CEO.
According to Summervill, CUs should take each executive's base salary, create a list of target incentives, then measure achievement level in each of several areas. She said a CEO with a base salary of $200,000 might have a potential of $50,000 in incentive pay. If the achievement rate is just 25%, then 25% times $50,000 equals $12,500 in bonus pay.
"Business lending is becoming more important," she noted. "Last year credit unions booked $40 billion in member business loans, with an average size of $223,000, which is too small for most banks. When banks were using government money to invest in Treasury Bonds rather than making loans in the community, credit unions were stepping up."
Right Mix of Incentives
Banks typically have an experienced commercial loan processor, while credit unions might not have that position, Summervill said. A commercial lending officer who moves to a credit union from a bank usually does so for a lifestyle change-he/she wants to get away from the dog-eat-dog world of commercial banking.
"Chief lending officer incentives must look at the components he/she impacts, such as size of loan portfolio, average referrals per month, delinquency/charge-off ratios on portfolio and interest-bearing accounts," she said.
