Salaries At CUs Demonstrate Need For Members To Act Like Owners

Register now

The Sacramento Bee recently published the salaries of the 25 highest compensated employees in state-chartered credit unions in California. The point of the article was that these 25 employees were part of the 1% and not part of the 99%.

The article went on to say that those who are moving their accounts to credit unions should reconsider their reasons for switching financial institutions. Many of those who are switching are doing so because they are concerned about corporate governance issues.

These governance issues include how compensation is managed. The implication of the Bee article was that the credit union executive salaries listed in the article are associated with the 1%. The further implication is that those in the 1% don't understand and identify with the needs of the 99%. It is them versus us.

I am concerned about governance issues and have written about those concerns. Credit unions are membership organizations. The credit union is "owned" by the members. Yet members do not act like owners.

Very few members attend annual meetings; very few members vote for their board members; most board members are nominated and because they are unopposed are elected without a vote of the members; very few members read the annual report and fewer still have any idea of how well the credit union is doing financially.

When owners do not pay attention to governance, then management tends to act in their own best interest. One area of abuse is often compensation.

Many people believe that the outsized compensation of corporate executives is one sign that corporate governance is out of control.

Examining CU Compensation

I decided to take a look at credit union compensation. The data I looked at is total compensation, which includes benefits and salary costs per full time equivalent (FTE). The data is from the NCUA 5300 call report and is extracted from my Peer to Peer data base provided by Callahan's.

The data shows that there are 69 credit unions with compensation per FTE over $100,000 per year. There are another 72 with average compensation over $90,000 and the average compensation for all credit unions in the USA is $60,529.

The average compensation per FTE in all 7,300-plus credit unions is reasonable given the median family income in the USA is about $50,000.

But that is an average and it say very little about the individual credit union. Compensation is driven by many factors (credit union location; credit union staff size; the type of services offered; the degree of sponsor support; the degree to which services are outsourced; etc).

HR 1151, The Credit Union Membership Access Act of 1998, required state-chartered credit unions to report their five highest compensated employees on IRS Form 990, a public document. The Bee article mentioned above used that data to report on the 25 highest-paid employees in California.

Congress intended members (the owners of the credit union) and the public to be better informed of compensation practices in the credit union.

The amount of average compensation per FTE at whatever level it is, isn't an indication of good or bad governance per se. But it does raise questions about how compensation is determined and how members benefit from the services provided by their credit union.

A Presumption of Transparency

I would assume that credit union members do not know anything about the credit union's compensation package.

Given that credit unions are non-profit organizations, there is perhaps a presumption that compensation practices would be transparent to members. That certainly was Congress's intent per HR 1151.

I wonder what members would say about the compensation levels at the 69 credit unions with average compensation over $100,000?

Just because you are in the 1% does not mean you do not identify with and understand the needs of the 99%. But it does raise questions about how involved the "owners" are in the credit union's governance.

Henry Wirz, President/CEO
SAFE Credit Union, North Highlands, Calif.

For reprint and licensing requests for this article, click here.