Creative Compensation Packages
CUs are becoming more innovative to attract and retain top talent.
If you look hard enough, you can find some good news on credit union compensation trends. But you have to look pretty hard.
“It would have been nice to see a spike in hiring, but at least downsizing appears to have leveled off,” says Beth Soltis, CUNA’s senior research analyst, regarding the findings of CUNA’s 2012-2013 Complete Credit Union Staff Salary Survey. “It isn’t surprising that credit unions are waiting for a sustained economic recovery before increasing their fixed expenses by hiring.”
Credit unions are slowly starting to loosen the purse strings. “A higher percentage of credit unions provided pay increases in 2011 and even more budgeted for salary increases in 2012,” says Soltis. “It’s another good sign that fewer credit unions froze salaries in 2011, and even fewer expect to freeze salaries in 2012.”
♦ Turnover will increase in the next decade as overworked staff move on and baby boomers retire.
♦ Pay increases probably won’t return to pre-2008 levels for most positions in the foreseeable future.
♦ Board focus: To motivate staff, encourage the use of variable pay and rewards for employees who meet member-service goals.
Other highlights from this year’s just-released salary survey include:
► Pay levels, in terms of pay increases or even dollars spent on variable pay, won’t be bouncing back to pre-2008 levels for most positions any time soon. Employers are likely to pay a premium for highly sought-after skills that are in short supply in the labor pool. To attract and retain talent, organizations will have to focus on intangibles, such as career development, flexible schedules, and “best place to work” practices.
► Credit unions that encourage and recognize employees’ efforts to serve members tend to be the ones with the highest employee-engagement levels and are known locally as desirable places to work.
While they might not be able to increase salaries dramatically in this economy, “credit unions can attract and retain employees by tapping into the philanthropic spirit, which helps credit unions compete for top talent without adding to expenses,” says Soltis.
CUNA’s salary survey finds employee morale still reeling from the recession. The past few years have seen stagnant wage growth coupled with increasing workloads. That’s a recipe for employee dissatisfaction and burnout. As the economy improves, employees will feel emboldened to look for greener pastures, and turnover is likely to increase.
“Many employers are reporting lower levels of employee job satisfaction and employee engagement,” says Soltis. “Dissatisfied, stressed employees will seek job opportunities elsewhere when hiring picks up.
“Retirements also will increase turnover in the near future. As a result of the economic downturn, many older workers put off retirement to rebuild their nest eggs.
“As finances improve,” she adds, “these workers will start to leave the workforce. And increased turnover will push up compensation as employers compete for talent. As a result, effective retention and recruitment efforts will become even more important.”
An organization’s success depends on its ability to retain and recruit skilled, high-performing employees. This, however, will become increasingly difficult in the years ahead, notes Compensation Resources Inc.
Organizations that regularly analyze the competitiveness of their compensation plans are the most likely to attract and keep top talent, says Soltis.
NEXT: Signs of Thaw
Signs of a thaw
Similar to national trends, CUNA’s salary survey found signs of modest overall wage improvements among credit unions in the past year. In 2011, 79% of credit unions with $1 million or more in assets gave salary/wage increases to at least some of their full-time employees.
The 79% represents a gradual improvement over previous years (77% in 2009 and 73% in 2010) but well below the 92% in 2008. And 79% of credit unions expect to provide salary/wage increases in 2012.
Wage freezes appear to be thawing. In 2011, 38% of credit unions initiated a wage freeze for at least some of their full-time employees.
THE POWER OF VARIABLE PAY
Variable pay (incentives and/or bonuses) continues to be a popular way to reward employees without increasing fixed costs. And bonuses (after-the-fact rewards for a job well done) continue to be the most common form of variable pay among credit unions.
Half of credit unions with $1 million or more in assets offer bonuses to their full-time employees, according to CUNA’s 2012-2013 Complete Credit Union Staff Salary Survey.
Credit unions are more likely to offer bonuses to managers than to nonmanagement staff. About 52% offer bonuses to management employees, while 42% offer them to nonmanagement employees. These percentages have increased from 47% and 38%, respectively, from last year’s survey.
About 30% of credit unions offer incentive payments (awards tied to preset performance criteria) to their full-time employees. Credit unions are equally likely to offer incentive payments to management and nonmanagement employees.
As credit union asset size increases, so does the prevalence of incentive payments. Half of credit unions with $20 million to $50 million in assets offer incentives to their full-time employees. This percentage increases to 66% among those with assets of $100 million to $200 million.
More than 70% of credit unions with $200 million or more in assets offer incentives to their full-time employees.
That’s significantly below the 45% of credit unions freezing wages in 2009 and 2010. An even smaller percentage (32%) of credit unions plan to freeze wages in 2012. And only 10% of credit unions with $200 million or more in assets expect to freeze some of their employees’ wages this year.
New names on the payroll
While credit unions remain hesitant to increase fixed expenses by adding to their payrolls, they are hiring. Approximately 20% of credit unions with $1 million or more in assets plan to add full- and/or part-time staff in 2012, similar to the percentage in 2011.
Hiring plans typically increase with the size of the credit union.
A much higher percentage of credit unions with $200 million or more in assets plan to add full-time staff in 2011 than their smaller counterparts. About 50% of credit unions with $100 million to $200 million in assets plan to hire full-time employees.
This percentage increases to 58% among those with assets of $200 million to $500 million, and to between 70% and 80% among those with assets of $500 million or more.
Only 4% of credit unions plan to reduce the number of full-time and/or part-time employees this year.
NEXT: Universal employees
“There’s increasing pressure to move high-cost/low-value transactions to nonbranch channels or to automate them within the branch,” says Soltis.
Teller transactions have decreased an average 4.4% annually in recent years, according to Novantas—a financial services research firm.
And 30% of branch teller transactions will disappear during the next three years because of remote deposit capture, according to projections from Mercatus, a research center at George Mason University.
To increase the visibility of these employees, their desks often are placed in the centers of credit union lobbies, sometimes even replacing teller lines. One-third of credit unions have these “hybrid” positions—sometimes called “universal employees”—that blend teller and MSR job responsibilities.
These trends and others are prompting some financial institutions to redefine job responsibilities, particularly on the front lines of member service. In many cases, the teller role is expanding to more closely resemble that of the member service representative (MSR).
In some cases, an entirely new position is being created to address all member needs through one point of contact.
These employees conduct transactions, cross-sell services, offer basic financial advice, and help with members’ unique needs.
The expanded job responsibilities typically require higher wages, notes Soltis. This position is so new, however, there isn’t enough history to yield compensation trends.
“As the universal employee position evolves, a consensus of job duties might emerge to form a new, unique position,” she says. “Until then, it’s certainly a trend worth watching.”
PREPARE FOR THE BRAIN DRAIN
During the next two decades, approximately 10,000 baby boomers each day will turn 65. And 72% of human resource professionals surveyed by the American Association of Retired Persons say they’ll have difficulty replacing the skill, knowledge, and experience of retiring boomers.
Companies without formal succession plans run the risk of spending valuable time searching for viable candidates. This applies to all positions, but especially for the top spots. It often takes several months or longer to complete a search for a new CEO. A void in leadership can have a detrimental effect on organizational performance, and can cause the organization to miss valuable opportunities.
Credit unions appear to be preparing for the transitions. About 66% of credit unions have formal succession plans in place, while 14% expect to have plans in place by year-end 2012, according to CUNA’s 2012-2013 Complete Credit Union Staff Salary Survey (cuna.org/compensation). The percentage of credit unions with plans in place is similar to 2011 and much higher than the 2010 figure of 58%.
About 6% of credit union CEOs plan to retire in the next two years, and only 1% plan to leave their credit unions for any other reason. Nearly 80% of CEOs planning to retire between now and 2014 are leaving credit unions that have succession plans in place.
The average age of credit union CEOs is 53.4 years old, with 28% nearing retirement age. About 21% are ages 60 to 64, and 7% are 65 or older. Among those with retirement plans, 61% are ages 60 to 64, while 30% are 65 or older. Among CEOs who don’t know if they’ll retire within two years, 40% are ages 60 to 64, and 27% are 65 or older.
When replacing their CEOs, credit unions are most likely to give internal applicants first preference, followed by giving internal and external applicants equal preference. Nearly half (47%) offer the position to internal applicants first, while 41% post the job internally and externally at the same time. Only 7% prefer solely external applicants.
About 75% of respondents say their executive vice president is qualified to fill the CEO position. And 60% of respondents say their chief financial officer is qualified for the CEO position. Half of respondents see the chief operations officer as qualified to succeed the CEO, while only 22% consider the chief information officer qualified.
“Credit unions are doing a good job of planning for CEO succession,” notes Beth Soltis, CUNA’s senior research analyst. “It’s great to see two-thirds of credit unions with formal CEO succession plans, even though a higher number would be even better.
“Multiple surveys have shown that companies are having a difficult time replacing their CEOs, and planning for CEO departures will be a primary challenge in the coming years.
“But with experts predicting a rise in retirement levels and in turnover, credit unions should definitely plan for the retirement of not just the CEO but of other senior executives and some nonmanagement positions that are essential to their operations.”
NEXT: Beyond base pay
Beyond base pay
Motivating staff will require more than routine annual salary increases. Base salary budgets have increased only modestly for two years, after bottoming out at a 1.7% increase in 2009, according to the 2012 Culpepper Salary Increase Budget Update Survey.
Average U.S. base salary increases were 2.4% in 2010 and 2.9% in 2011. During 2012, base salaries are projected to increase about 3%.
For full-time credit union employees, average salary increases were somewhat lower than national figures—2.4% for both management and nonmanagement employees, according to CUNA’s survey. Budgeted base pay increases for 2012 are similar to 2011 figures.
Anticipated pay increases for 2013 are lower, at roughly 2.2%.
To motivate staff, some employers use formal pay-for-performance systems. Under these systems, high-performers receive much larger pay increases while low-performers receive low or no pay increases.
While the idea behind the systems seems logical, putting it into practice can be difficult for some managers, notes Soltis.
Currently, 27% of credit unions have formal pay-for-performance systems in place. Credit unions are more likely to have systems that reward high-performing, nonmanagement employees (24%) than management employees (2%).
The likelihood of having these systems in place increases with asset size. About half of credit unions with $50 million to $500 million in assets have pay-for-performance systems, compared with about 60% to 70% of those with $500 million or more in assets.
Helping others can be another motivating factor for workers. Here, credit unions might have an advantage over banks and some other industries due to their basic philosophy and structure.
“Credit union employees get a great deal of satisfaction out of serving members, and this motivates them and increases their loyalty to the credit union,” Soltis says.