As CEO retirements and succession announcements continue to appear frequently in industry news, it’s clear that one size does not fit all in terms of compensation philosophies or executive benefits plans.
Before diving into specific plans, boards should start by defining the goal — for both the credit union and the executive. A brand-new CEO who is in their 40s will likely be motivated by a plan that looks very different from what a long-term CEO who is much closer to retirement finds attractive.
Who Is Involved In The Process?
To be successful, credit unions should ensure that executives are part of the process. While the board of directors must ultimately make the decisions on a CEO’s compensation package, involving the CEO in initial discussions to gain an understanding of what would be most meaningful to them is invaluable.
At the end of the day these plans are meant to be retentive, and if one party’s objectives are not met, the plan may not function effectively as designed.
What Are The Blind Spots?
Some of the most common compensation blind spots we see within the industry can be easily avoided through effective planning and high-quality conversations. A few of these proactive steps include focusing on purpose alignment, investing in board member education, benchmarking against your peers, and understanding potential hidden costs. Siloed decisioning, which refers to only discussing and deciding a time-based Supplemental Executive Retirement Plan (SERP) versus including the entire compensation framework for the CEO, executives and other key roles, is also a potential pitfall to avoid.
As cooperatives focus on retaining, rewarding, and recruiting top talent, it’s essential that they avoid such blind spots and understand current candidate expectations to remain competitive.
What Are The Current Trends?
A SERP is now table stakes when recruiting a new CEO, with an expectation that a plan will be in place within their first 12 months of employment. Increasingly, SERPs are also an expectation of other C-suite candidates. Benefits like these are a key part of what attracts high performers to new opportunities or helps retain them.
The most common types of SERPs are 457(f) plans and split-dollar. Designed strategically, these can be effective retention and recruitment tools. To truly understand the pros and cons of the many options available, you may want to enlist the help of a benefit design specialist to create a new plan or enhance an existing one. Design specialists can help reveal nuances such as preferences for long term or short term retention, upcoming life events to help design plans, and other factors to ensure the plan has the intended effect.
How Can A Credit Union Align On The Goal?
The following key questions can help boards, CEOs, and plan partners begin to align while ensuring a balanced approach that reinforces long-term stability:
- Define the primary objective of the plan — Is the goal long-term retention, retirement security, short term?
- Ensure the benefit is meaningful enough to achieve the goal — If the value is too small, it will not be an effective retention tool. How will you determine the benefit?
- Create a mutually beneficial structure — The plan should reward the executive while aligning with the credit union’s long-term success and financial capacity.
- Determine the desired retention horizon — Identify the specific timeframe the organization wants to encourage the executive to remain (e.g., five, 10, or retirement).
- Align on vesting and payout triggers — What milestones (years of service, retirement, performance, etc.) must be met for benefits to be earned?
- Balance competitiveness and stewardship — Benefits should be competitive with the market while remaining responsible to members and the institution.
- Confirm long-term organizational alignment — The plan should reinforce leadership continuity and strategic stability.
Remember, Flexibility Is The Name Of The Game
Compensation philosophies and executive benefits plans can be flexible in their design. Employers have the discretion to structure their philosophical approaches, policies, and specific plans in ways that align with the organization’s goals and the needs of the executives.
Executive benefits plans should complement existing incentive structures and take both individual and organizational objectives and time horizons into account. The financial impact of the plan, on both the credit union and the individual, should also be considered. This includes P&L, cash flow, executive taxation, potential excise tax to the credit union, and the long-term nature of cost recovery strategies. A trusted plan design specialist can help your credit union understand all its options and customize executive benefits plans to align with organizational goals while retaining key executives.
Contact us to learn more about how to evaluate and enhance your executive compensation and benefits package.
Tom Sievewright is director of executive benefits at ALM First Executive Benefits.
“ALM First” is a brand name for a financial services business conducted by ALM First Group, LLC (“ALM First”) through its wholly owned subsidiaries: ALM First Financial Advisors, LLC (“ALM First Financial Advisors”); ALM First Advisors, LLC (“ALM First Advisors”); ALM First Analytics, LLC (“ALM First Analytics”) and ALM First Executive Benefits, LLC (“ALM First Executive Benefits”). Executive benefit services offered exclusively through ALM First Executive Benefits.
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