Executive Compensation: Waiting for a Rebound

Expect smaller pay increases, fewer incentives.

September 9, 2011

Ask Beth Soltis to cite the most noteworthy executive compensation trends among credit unions today and she’ll quickly reel off three: Lower average pay increases, a lower likelihood of receiving a pay increase, and lower prevalence of incentive awards, says CUNA’s senior research analyst.

Before the recession, credit union CEOs typically had annual pay increases of 7% to 8%, and about 5% of CEOs wouldn’t receive a pay increase in a given year.

“But in 2009, 31% of CEOs did not receive a wage increase, while the average increase was 4%,” Soltis reports. “The 2010 average CEO pay increase was 3%. Although more CEOs received an increase, 26% did not.

Average Pay Increases for CU Management*
2007: 4.27%
2008: 3.59%
2009: 2.59%
2010: 2.16
2011*: 2.17
2012*: 2.17%
Source: CUNA’s 2011-2012 Complete CU Staff Salary Survey Report

“Also, fewer CEOs are planning retirement,” she continues. “They’re trying to rebuild their nest egg or are waiting for the economy to improve. Many CEOs, especially those at smaller credit unions, are personally invested in their credit unions and don’t want to leave until their credit unions make it through these tough times.”

Soltis says “planning to retire” generally means retirement will occur within five years. The percentage of CEOs planning to retire fell from about 30% pre-recession to about 20% during the recession, and remains at that level.

According to CUNA’s 2011-2012 CEO Total Compensation Survey Report, about 30% of credit unions offer CEO incentives—typically cash awards based on predetermined performance criteria. Before the recession, 45% of credit unions offered CEO incentives, Soltis reports.

She believes pay increases will start to rebound this year, albeit not to pre-recession levels. “Although the economy is improving, it needs to stabilize for credit unions to dole out higher increases. Generally, bonus and incentive amounts are up a bit, mostly because financial institutions are a little better able to give them.”

Even if executive compensation does rebound, Soltis says there will be a higher level of accountability due to provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act and increased public scrutiny.

“Boards of directors will need to be closely involved in every piece of compensation planning and document every decision and the rationale for it,” Soltis says. “For example, if you use peer comparisons to justify an incentive or salary, you have to document who and why you selected as your peer group, and what standards you used. NCUA will ask, ‘Is this truly a peer group?’ There will be some teeth here—boards will be held responsible for decisions that are later called on the carpet.”