More CEOs Receiving Variable Pay

The number of executives earning incentives and/or bonuses returns to prerecession levels.

November 3, 2013

Competition for high-performing credit union executives remains intense. And that will only increase as regulators continue to call for additional compensation disclosures.

All the more reason for boards to regularly examine their current executive compensation plans to ensure they’re in line with industry standards
and reflect the interests of members and current or potential CEOs, according to the 2013-2014 CUNA Total Compensation Report-CEO.

As of Jan. 1, 2013, CEOs of credit unions with assets of $100 million or more earn a median base salary of $202,380. This is an increase of 6.1% compared with 2012.

Base salary forms the bulk (84%) of a credit union CEO’s total compensation package. Variable pay—incentive and/or bonus payments—accounts for 7%
of CEOs’ total compensation.

CU Directors NewsletterOverall, 72% of CEOs received variable pay in 2012, returning to levels last seen in 2008 after falling to 65% each of the previous three years during the recession. Credit union CEOs earned a median $20,720 in variable pay in 2012.

Among CEOs eligible for incentives, 70% earned them. Although this figure decreased from 80% in 2011, it remains higher than the three previous years.

These CEOs received a median payment of $22,271 in 2012, which represents 10% of base salary.

Credit unions providing benefits such as health, dental, and life insurance, as well as retirement or pension contributions, spent a median $19,371 in 2012. This represents 9% of base salary.

The roughly four-fifths of credit unions providing their CEO with exclusive use of a vehicle (45%) or car allowance (37%) spent a median $7,447 in 2012.

In all, credit union CEOs earned a median $246,551 in total compensation, 6.9% higher than the previous year.

When evaluating and comparing national averages with the base salary of an individual credit union CEO, it’s important to look at averages or dollar amounts from credit unions with comparable assets, CUNA researchers say.

Employment contracts

Employment contracts are one way to connect executive compensation and organizational goals. These agreements not only define and establish the roles of the executives within the credit union, but also align organizational goals and executive performance.

Currently, 40% of CEOs of credit unions with $100 million or more in assets have a written employment contract or agreement with the credit union’s board of directors. This is consistent with past trends.

Among CEOs with employment contracts, boards initiated 65% of them, both CEOs and boards directed 30% of them, and CEOs initiated only 5% of contracts.

Succession plans

Credit unions without formal succession plans can be caught off guard when their CEOs leave. With a lack of leadership skills in the current job market, these organizations find themselves in an unenviable position as they struggle to find replacements.

Fortunately, at most credit unions, boards have thought about how they’ll replace their current CEOs when they depart.

Sixty-three percent of credit unions with $100 million or more in assets have succession plans in place that specify how they will replace their CEOs. An additional 13% expect to have such plans in place by year-end 2013. This is consistent with past trends.

Presently, 17% of CEOs of credit unions with $100 million or more in assets plan to retire in the next five years. The average age among those planning to retire is 62.2.