5 minutes
In the “good old days” hiring a new CEO was a lot simpler.
“You hired from within, agreed on a salary, shook hands and the person stayed at the credit union for 20 years,” says Scott Albraccio, sales manager for executive benefits at CUES Supplier member and strategic provider CUNA Mutual Group, Madison, Wis.
But today?
“It’s an eye-opening experience for most credit union boards,” Albraccio says. “They probably haven’t hired a CEO in at least a decade.”
In addition to eye-opening, hiring a CEO can be costly, too. Consider both the tangible costs of actually going through the process of hiring a new person, plus such intangibles as lost productivity while the job is vacant or as a new hire learns the ropes.
What will it take to attract your next CEO?
“Today, there are employment contracts and CEOs want a guaranteed position for three years, a car, exceptional insurance, and a deferred compensation plan,” Albraccio says. “You need a comprehensive benefits package to attract top talent, and restrictions in place to avoid losing them. Headhunters call every day.”
Many boards likely don’t know what it will take to be competitive in their marketplace and it’s critical to find out.
“Look at the compensation studies put out by CUES or CUNA, or hire someone like Deedee Myers, who can do a customized study for you,” Albraccio says. Myers, who holds a Ph.D., is CEO of CUES Supplier member and strategic provider DDJ Myers, Ltd., Phoenix.
Who’s likely to come into the top spot?
“Historically, the CFO (chief financial officer) was the go-to candidate,” Albraccio says. “Now, depending on the credit union’s needs and strategic vision, the board might choose a CEO from HR, operations, marketing or IT,” as well as the CFO.
The board might also choose an outsider from another credit union or even from the world of banking. An April 16 Credit Union Journal article reported that the number of soon-to-be-vacant slots combined with the need for specialized talent was driving the trend to hire bankers. According to the article, this began in 2013 and is likely to continue until 2017.
Deferred Benefits Programs
Top talent is in demand, and these executives know exactly what’s being offered in the compensation marketplace. Credit unions quickly realize it can be hard to compete—especially if their candidate is from banking.
“If it were simply a matter of salaries, the research shows credit unions are pretty competitive,” says John Pesh, director for executive benefits at CUNA Mutual Group. “But we struggle with the complete benefits package. Banks can offer stock options and other perks that credit unions cannot. And that’s where SERPs can help.”
SERPs, short for Supplemental Executive Retirement Plans, are deferred benefits plans that help address both retirement and retention challenges. These plans are non-qualified, which means they can be made available to an individual (rather than equally to a complete employee class). They can be an affordable way for credit unions to beef up their compensation packages and can be tailored specifically for the situation and individual(s), Pesh says.
Knowledge Helps
Your board may wish to gain more knowledge and experience with deferred compensation. Without enough knowledge, some boards worry that executive benefits plans will be expensive to fund—especially with the low investment income environment of recent years. Your board could also be concerned that these “extra” benefits don’t align with credit union philosophy—or that having a SERP could open the credit union up to compliance and regulatory issues.
“Education is the answer to all these worries,” Albraccio says. “First, boards need to understand that CEOs face a retirement parity gap (see the next section) and what top talent—especially top talent from outside the system—is demanding. Then, it’s critical to show how a properly structured SERP can align with credit union goals, the role pre-funding can play and that the right benefits partner will minimize the regulatory risk.”
The CEO Retirement Funding Gap
Retirement-related benefits are especially popular because highly compensated individuals can find themselves in a tricky position come retirement. The Employee Retirement Income Security Act of 1974 has restrictions that limit tax-free contributions to a 401(k) and limit Social Security benefits. These restrictions create a gap in retirement income for highly compensated individuals.
Lower-paid employees can typically expect to receive 60 percent to 80 percent of their salary in retirement through these two sources. Due to restrictions, more highly paid employees can typically receive roughly 30 percent to 40 percent of their salary through these channels, according to internal CUNA Mutual Group data.
Once your CU has a plan in mind, “look at the (NCUA) Examiner’s Guide for due diligence recommendations,” Pesh says. “Your board and senior executives must be able to demonstrate to the examiner that they understand the value of these plans and the risks associated with having them and not having them. You must also understand your legal authority to create a deferred compensation program and make sure the plan is set up under the correct tax code. Work with a qualified advisor, attorney, and CPA.”
Other C-Level Staff
As your CU navigates the challenges of bringing on a new CEO, be aware that this will impact the rest of the CU’s staff.
“Often, either multiple staff members seem like good prospects for the role and only one is picked, or you have multiple good internal prospects and no one is picked,” Albraccio says. “The people who weren’t selected are likely to start looking for a new opportunity outside your credit union, but their presence during the transition is critical to your success.”
Deferred benefit plans should be structured to help retain key executives through the desired transition and retention periods and can be tailored to each individual. Be sure these are in place before the CEO selection process begins.
Fran Zaugg is senior marketing specialist for CUES Supplier member and strategic provider CUNA Mutual Group, Madison, Wis.
