Credit Union Director Pay Becoming 'Acceptable' — Except to Bankers

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Whether board members of credit unions should get paid is a divisive issue in the credit union world. Bankers, on the other hand, are of one mind on the idea — they hate it.

Compensation for credit union directors is hardly new, but at the same time, it has been relatively rare. Credit unions were founded as volunteer-run cooperatives and most continue to operate that way. However, evidence points to a growing trend of credit unions using compensation to attract and retain board members, according to Ben Rogers, research director at Filene Research Institute in Madison, Wis., which recently published a report on the subject.

"I think if we had done the study 10 years ago people would have said compensating directors was absolutely against the ethos of credit unions, but today it is much more acceptable," Rogers said.

For bankers and bank trade groups, though, director pay is just another reason to get angry at credit unions.

"When credit unions want to expand their powers, they talk about being volunteer-run cooperatives," Mark K. Scanlan, a senior vice president at the Independent Community Bankers of America, said Tuesday. "This undermines that argument. If credit unions are going to act like banks and operate like banks, then they should be taxed like banks."

Keith Leggett, a retired American Bankers Association economist who writes a blog about credit unions, agreed.

"I think this will help banks, because it rips away one of the supports for the [credit union] tax exemption," Leggett said Tuesday.

When performing the study, Filene scoured state laws across the country and examined IRS Form 990 filings for every state-chartered credit union in the states that allow director compensation. Federal credit unions are prohibited from compensating directors.

According to the research from 145 credit unions in 12 states, directors earn somewhere between $60 and $37,597 per year.

In Tennessee, for example, the average board pay is $159 while in Rhode Island the average tops $9,000.

According to Leggett, paying directors is a controversial topic among credit union supporters, who recognize it lends credence to bankers' narrative about the industry. "It's clearly an issue. People recognize it's eroding the distinction between credit unions and banks

The Filene study acknowledged as much, noting many feel paying directors is "anathema to the cooperative spirit of credit unions," while others feel it will improve director accountability.

"It is a benchmarking report, and it is also a pros and cons report," Rogers said of the study. "We realize there are opinions on both sides. Some think paying board members attracts better directors, while others think it might lead to entrenchment of board members you want to get rid of, or even threaten the credit union tax status. We just put facts out there to let people make their own decision."

Not surprisingly, larger credit unions are more likely to pay directors than are smaller institutions, Rogers said.

"When we update our findings in a few years we expect to see those credit unions that are compensating their board members raising their compensation," he said. "I think we will see a split between the larger credit unions and the smaller ones. The larger credit unions are interested in putting together packages that are attractive enough to catch the attention of highly talented directors.

"With that said, I don't think they will be publicly-traded-company type of packages. I don't think we will ever see credit unions paying the type of compensation you see at a Fortune 500 company," he added.

According to Rogers, one reason for this acceptance is an ongoing "generational change" in boards. In general, older generations see paying directors as a negative, while the newer generation thinks of it as acceptable.

"The other reason is with the financial crisis and [the] Dodd-Frank [Act], there is an acknowledgement that boards have a lot of responsibility — and even personal responsibility," he said. "Boards recognize the need for compensation to attract and retain quality directors."

The study made a careful distinction between "compensation" and "pay." Rogers noted it did not include payment for travel to conferences or educational sessions, or items such as equipment reimbursement. Those types of expenses were seen as a part of training, he said.

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