Best practices for negotiating SERPs

Best practices for negotiating SERPs

Boards should explore this tool as a means of rewarding and retaining executives.

July 5, 2017

For a credit union to reach its strategic goals, leadership continuity is imperative.

Creating a strong financial tie between top executives and the credit union will facilitate your succession plan, and effective negotiation of executives’ compensation is a critical component to binding this relationship. It’s a balancing act between the credit union’s needs and those of its key leaders.

To begin negotiations with a current executive, start by looking at when your CEO expects to retire and ask about his or her goals. You should also prepare for an unexpected departure, especially if the CEO’s base compensation package is lower than that of peer credit union executives. Loyalty counts, but often not enough to turn down an attractive offer with a pay increase.

For this reason, it’s essential to regularly benchmark your base compensation packages against peer credit union data through a tool such as CUNA’s Compensation Analytics, comparing geographic location, asset size, and even field of membership.

Directors NL subscribeOnce you’ve addressed plans for your CEO’s departure, ask what strategic objectives would be disrupted if no right-hand person is ready to take over, either full-time or on an interim basis. Consider what you might need to do financially to retain your second-in-command.

Look at credit union milestones—typically over the next three to five years—that prompt you to retain and reward an executive, such as:

  • A core data processing conversion. What would happen if your vice president of information technology decided to take early retirement?
  • A new headquarters. How would the building’s development be affected if your chief operations officer took a job that offered more in terms of a base salary?

Once you’ve done your research, it’s time to explore a key retention tool for your CEO and other top executives.

Why a SERP?

Traditionally, the acronym SERP has stood for supplemental executive retirement plan. But compensation at retirement doesn’t carry the same weight it once did, so credit unions should now think of this tool as a supplemental executive retention plan.

According to CUNA’s 2016-2017 Total Compensation Report-CEO, nearly six in 10 credit unions now use SERPs, which provide more timely payouts than traditional retirement plans and can supplement 401(k) plans, which sometimes get capped.

The target audience continues to grow younger. Based on the number of credit union executive retirements on the horizon, the median CEO age of 55.5 cited in CUNA’s 2016 CEO survey likely will decline further. 

Customizing the SERP so it’s meaningful to the executive is key. For that reason, involve your CEO at the outset of the process. Negotiate a plan that will make it difficult for the executive to leave the credit union during a given period. The specifics will vary depending on the individual.

A SERP can target life-stage events for an executive’s children, such as college enrollment or a wedding, which provides an incentive to stay at the credit union. Conversations with the CEO can illuminate these events.

You also can implement SERPs when hiring someone from the outside. You can build a SERP into their employment agreement so it takes effect after a probationary time, often 12 to 24 months of service. 

Who should negotiate SERPs?

Your board’s compensation committee should reach a deal on SERPs for your CEO, and report that agreement to the full board after completing due diligence.

The board should delegate authority to the CEO for negotiating SERPs for other leadership team members, and allow the CEO to report progress as needed.

What type of SERP should you negotiate?

Credit unions can use a 457(f) SERP plan for payouts based on a credit union’s milestones or the executive’s life events. You can make payouts every three to five years, and the payout can be a specific amount or one based on investment earnings though prefunding benefits.

Another SERP option is split-dollar life insurance. It’s a more cost-effective way to enhance your executive compensation package because the credit union and executive split the cost and benefit. These plans require medical underwriting. Again, payouts can be made based on amount, length of service, or other milestones.

A third alternative is a 457(b) plan. If retention is your goal, this isn’t your best solution because contributions to the plan are vested 100% from day one. Think of it as an extension of a 401(k) plan; it’s often used if the executive has been capped on contributions to that plan.

Consider both the strategic goals of the credit union and the needs of the executives you want to retain. Maintain an open dialogue throughout the process so you can negotiate a SERP that’s a win for everyone.

SCOTT ALBRACCIO is executive benefits sales manager with CUNA Mutual Group. Contact him at