Credit union CEOs must overcome their reluctance to talk with their boards about compensation philosophy—not just for their own benefit, but for the good of the organization.
It’s hard for many CEOs to be advocates for themselves, says Tom Telford, principal/area senior vice president for BFB Gallagher. “It’s just not in your nature to do that.”
The main impediment sounds something like this, says Scott Albraccio, executive benefits sales manager for CUNA Mutual Group: “How do I talk about compensation without sounding greedy or self-serving?”
The duo provided some pathways to solve that quandary during a presentation at the CUNA CEO Council Conference.
First, they presented some common hurdles to healthy communication about executive compensation, with some assistance from the 70 CEOs in attendance at the inaugural event:
“Encourage the board to talk about compensation philosophy and come into agreement so you can manage to it,” Albraccio advises.
He offers two real-life scenarios that illustrate the need to customize compensation packages to an executive’s needs, and maintaining flexibility from a budget standpoint.
Positive: To improve the chances of retaining an upwardly mobile 41-year-old CEO, the board structured a compensation package that focused on the needs of his three young children, and addressed executive team members so they would be less likely to depart due to a lack of succession opportunities.
“The CEO needs to weigh what he’s giving up if he decides to not stay there,” Albraccio says. “And we look at those other executives as the bench. They’re critical to the progress of the organization.”
Negative: A board that selected a 48-year-old CEO didn’t anticipate the desire for a package geared toward retention as opposed to retirement, which the predecessor favored. The previous plan worked well for the former executive but caused capital constraints that prevented the board from properly recalibrating its approach for the successor.
“The board didn’t think through the downstream impact of the plan,” he says.
Telford places the responsibility for initiating conversations on CEOs. He advises framing desires around five words: This is important to me.
“Not because I only want more compensation for myself,” Telford continues, “but because I believe this organization will be more successful long-term if we address compensation as a whole.”
The credit unions that best address this complicated issue align strategic goals and compensation philosophy, and have implemented a systematic process to regularly review and discuss the effectiveness of their current approach, say Albraccio and Telford.
They offer two practical tips to keep compensation conversations at the forefront:
1. Include in every board packet compensation data for local, regional, and national peer institutions, and updates on compensation trends.
“Then, directors are getting information that makes them more comfortable in their understanding of the topic,” Telford says.
2. Insist that the board conduct a thorough annual review of the CEO’s performance.
“That’s your time to shine in front of your board—to explain all the achievements of the past year,” Albraccio says. It’s also a time to look ahead to the challenges the credit union will tackle in the next 12 months.
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