Executive Retention: Compensation Data to Stay Competitive

By Liz Santos, Chief of Staff, Gallagher Executive Benefits

Liz Santos, Chief of Staff, Gallagher Executive Benefits

Credit unions seeking to ensure their executive pay is competitive have a new resource. The annual NAFCU–Gallagher Executive Compensation and Benefits Survey Report was distributed in June. The report includes data from nearly 700 credit unions across the country, formatted into peer groups with assets ranging from less than $25 million to more than $5 billion.

An effective retention strategy incorporates salary, annual bonus, nonqualified benefit plans, and fringe benefits. In the report, these critical elements are covered in great detail, providing insights into how peers—and even those in the next asset range—structure their executive pay. Many credit unions have reported that looking at the next asset range can be helpful for budgeting purposes.

Salary data is provided in percentile format in the report. It is important to note that asset size is the primary driver of salary; however, there are other important factors that go into salary range, including:

  • Credit union performance;
  • Individual performance;
  • Tenure and time in position;
  • Organization complexity;
  • Market competition; and
  • Recruiting difficulty.

The comprehensive section on annual bonuses dissects the various components of a formal bonus versus an informal bonus. A formal bonus incorporates goal setting, and there are several metrics detailed in the report that credit unions may use. Meanwhile, an informal bonus is awarded at the board’s discretion and does not have any pre-set parameters.

Nonqualified benefit plans are an essential retention tool, and many say they should be provided to stay competitive. These plans help bridge the gap between contribution limits on an employer’s traditional savings plan, and a highly compensated employee’s retirement income need. The most common plan types are Split Dollar and 457(f) plans. The report includes data on the benefit amount, specifically what percentage of pre-retirement income is used to calculate the benefit.

Numerous data points on fringe benefits and vehicle allowances are also provided. Whether provided only to the CEO, to all executives, or to the entire organization, fringe benefits are an expected, yet often overlooked, part of a competitive package.

The report also includes data on the board of directors: benefits, annual budgets, compensation, and more. In addition, the report provides a national summary of executive benefits. Credit unions in areas where the cost of living is higher than the national average would use a cost of living index to adjust up for regional differences. However, credit unions in less costly areas may decide to not adjust down if they find themselves paying a premium to recruit executives.

Benchmarking the executive pay your credit union offers against your peers is an important exercise that should be completed annually—especially if you are in a highly competitive market or getting ready to recruit. Credit unions considering mergers will need to benchmark their executive pay since the unified organization may have the expense of leveling pay.

While the report helps evaluate where you fall in the market, it does not tell you what you should be paying your executives. The report is an aggregate summary of data without commentary or circumstances to explain the two important factors of how or why. Each credit union has a unique situation that creates a framework for setting salaries and benefits to meet their strategic needs. Consider engaging a consultant to help align your objectives with your executive pay by setting the appropriate salary and nonqualified benefit levels, as well as bonus plan design. The complimentary report is provided to survey participants. To request the report, visit www.nafcu.org/Gallagher.