WASHINGTON (11/18/13)--The Credit National Association is setting the record straight on the issue of credit union CEO vs. bank CEO compensation after the American Banker cited a statistic that is "misleading," said CUNA.
A Nov. 13 item in the Banker titled "Banks Trail Credit Unions In Exec Pay, Loan Growth, Political Clout" cited an enetrix study that claimed the median base salary of credit union CEOs is higher than that of bank CEOs. (enetrix is a division of Gallup, Inc.)
The Banker failed to note one of the study's key points on page 14: that payout from bonuses and stock options, which are far more valuable than base salary, are not available to credit union CEOs, since they are member-owned cooperatives.
The American Banker claim is "very misleading," said Paul Gentile, CUNA's executive vice president of strategic communications and engagement. He noted the comparisons in the section of the study include only base salary--not long-term incentives provided to bank CEOs such as yearly bonuses, stock grants and stock options.
"When credit union CEOs end their careers, they have nothing to cash in because the members own the whole credit union," said CUNA Chief Economist Bill Hampel. He pointed out that with the increased scrutiny given to CEO salaries, banks have moved more toward other forms of raising compensation levels rather than base salary: Historically, on a like-size basis, CUNA compensation studies have consistently shown credit union CEO compensation is reasonable.
The studies also consistently have shown, Hampel noted, that bank CEO compensation is substantially higher than credit union compensation. More recently, he said, this has changed for some size groups--not because credit union compensation has increased substantially, but apparently because bank non-stock compensation has declined dramatically. CUNA's current comparative data shows a nearly 25% decline in bank non-stock compensation compared to the 2006 norm.
"We believe it is incredibly unlikely that total bank CEO compensation--including stock--has declined by 25% over the past five years. It simply defies logic," Hampel said.
Instead, he added, what has likely happened is that in the wake of the financial crisis and Dodd-Frank Act reforms, bank CEO base pay has become a substantially less prevalent component of total bank CEO compensation while other forms of compensation such as restricted stock grants have become a substantially more prevalent component. Favorable accounting and income tax rules for restricted stock has helped to fuel this trend.
Hampel noted, "If bank CEO compensation is similar to other small corporations, then cash compensation represents only 40% of the total, and a bank CEO earning $250K in base pay--typical in the $500 million to $1 billion asset range--would have total compensation of over $600k--well above the credit union average in every asset-size category we track."
Hampel charged that the American Banker article "magnifies and gives further credence to the false impression it has created by quoting a banker who claims that, 'Credit unions are paying their folks more than two times what I pay mine.'" However, the enetrix study also shows that, across all asset classes, credit union median total compensation for most key senior executives is substantially lower than bank median total compensation.
However, in today's complex financial environment, compensation for CEOs must be sufficient to attract talent needed to manage financial institutions that in many cases offer a complete menu of financial services and act as stewards for their member savings, Hampel said.