The overall environment is gloomy, volatile, inflationary, and mired in recession. How can credit union executives work with boards to agree on market-rate executive retirement packages?
It used to be that credit unions didn’t feel the heat of competition. They had a monopoly on their SEGs and there was general parity for technology across other financial institutions.
Any credit unions that may feel they don’t compete with other FIs today are living in a world that no longer exists. Fields of membership have expanded. There are more credit cards and niche financial products in each person’s wallet—physical or digital.
Whether they know it or not, credit unions are fighting against banks, fintechs, tech companies, and more aggressive credit unions for every new member, every loan, and every financial product.
It also means that credit unions are competing for talent.
The Board vs Compensation Plans
Many board members are not highly-paid executives. They joined the credit union board because of the prestige, the drive for service, and the desire to do some good or somehow shape the success of the credit union.
When they look at the strategic use of capital, they often think about operating procedures and finding ways to directly benefit members. To them, executive compensation packages represent a relatively large sum of money that should go toward something that seems more tangible or benefits more people.
But credit unions today are more complex than ever; they have broader fields of membership, far more technology, and much more competition than before. Furthermore, in current economic conditions, growth will not come easy and talented leaders will make all the difference.
The Case for SERPs
To be clear, the argument for SERPs works only for two types of executives:
- Those that the credit union wants to retain until retirement, and
- Those that they wish to retain for 5+ years.
That limits which executives should be considered for SERPs. Matching strategy, culture and individual performance goals becomes critical and working with a consultant can often help identify the right product for each leader.
Additionally, building a compensation plan takes about 6–9 months. There’s a lot of education involved—both for the board and the beneficiaries—and no SERP should be put in place without serious understanding and consideration. However, that education ensures great results.
So, SERPs must be data- and strategy-driven. But what are the next steps?
The first step is to identify the key board members to work with. Don’t wait for board meetings to inch things along. Engage the right board members early and remain transparent throughout in order to build momentum. Relying solely on the executive team will stall the process.
Not to put too fine a point on it though, but the research and education component of SERPs is critical. Furthermore, the necessary information is hard to come by. An experienced partner or firm is highly recommended for the process.
If you’d like to discuss what kind of information you need to develop a SERP please get in touch. With OM Financial Group, I’ve developed many plans and helped to educate boards on the numbers, strategy, and necessity behind SERPs. You can reach me here.