Executive compensation is often a point of contention among stakeholders, boards, and regulators, but it doesn’t have to be. When you view executive compensation as a strategic initiative like a new member product or a CUSO investment, the conversation changes from “how much will it cost us?” to “how much can we gain from this?”
The biggest opportunity often lies in the retirement aspect of an executive compensation plan.
Are SERPs the Key to a Mutually Beneficial Compensation Plan?
SERPs (Supplemental Executive Retirement Plans) aren’t just shiny carrots to dangle in front of prospective and existing talent—they can also be an asset to the credit union itself.
Specifically, a split-dollar insurance plan transforms retirement compensation from a cost into an asset.
In a split-dollar insurance SERP, the remainder of an executive’s retirement plan that isn’t covered by the company 401K or social security comes from gains on a life insurance policy. The credit union loans the exec the money to cover the premiums, and at retirement, the executive can draw the tax-free gains from the policy (unlike the industry-standard 457F, which is taxed heavily upon payout) and the credit union is paid back with interest.
The drawback here is that the credit union doesn’t receive repayment until the executive passes, meaning the organization may carry the balance for several years before seeing a return on investment.
Regardless of the potential benefit to your organization, most incoming executives now demand a SERP as part of their compensation package. Creating a SERP strategy could prevent the institution from losing out on a desirable hire at the negotiation stage, and/or losing a valued team member to a competitor.
This strategy offers both long- and short-term advantages, but the key takeaway is that it offers credit unions the opportunity to recruit and retain the talent they urgently need without having to eat the cost of retirement benefits in the long run.