Components of a Competitive CEO Compensation Package

By Kristina Grebener
Senior Research Analyst
Credit Union National Association

Recruiting and retaining top CEO talent has become increasingly competitive for credit unions, nationwide. According to E-Scan’s 2003 Complete Credit Union Staff Salary Survey, 30% of CEOs with $100 million or more in assets plan to retire in the next five years. Couple the looming need for CEOs with the increasing complexity of credit unions and it becomes clear that even in today’s struggling economy, offering a competitive compensation package is essential to attracting and retaining high performing CEOs.

Beyond base salary, a competitive CEO compensation package today ties performance to bonus and incentive awards, supplements retirement packages and benefits for executives, offers perquisites, and even has a provision for severance pay.

Nationwide the trend has been to align organizational goals with CEO performance. Reflecting this trend, credit union CEO bonuses and incentives have become more common in the past few years. According to E-Scan’s 2003/2004 CEO Total Compensation Survey, overall, nearly 85% of CEOs in credit unions with $100 million or more in assets received variable pay — bonuses and/or incentives — in 2002. Earnings (ROA, ROE, or ROI) and loan growth are the top criteria used to determine incentive payments.

Due to the regulations limiting contributions and maximum benefit amounts on qualified retirement plans such as 401(k)s, providing CEOs with the means to maintain their standard of living after retirement is not only necessary for recruiting purposes, but is also highly effective in retaining the current CEO.

Supplemental executive retirement plans (SERPs) are nonqualified deferred-compensation arrangements designed to offset the limitations of 401(k) retirement-plan benefits. A 457(f) plan is such an arrangement and allows the credit union to pay the CEO a certain amount of money at a predetermined date based on either years of service or age. Currently, one-quarter of credit unions with $100 million or more in assets offer 457(f) plans that payout, on average, $750,000.

Beyond SERPs, many organizations also offer executive benefits designed to augment those benefits offered to all employees. One of the most common executive benefits offered by organizations nationwide is split- dollar insurance where an employer and an employee share the premium costs of a life insurance policy. The employer is listed as a beneficiary on the policy and recoups the premium costs by receiving a portion of the death benefits. Beyond split-dollar agreements, it is common for executives to receive supplemental life, health, vision, dental or any insurance beyond that provided to other staff. Roughly 15% to 20% of credit union CEOs receives each of these supplemental benefits (see figure).

The types of perquisites (mostly seen as benefits due the executive) offered to credit union CEOs have changed very little over time.

The use of company cars and the granting of car allowances is one of the most common perquisites offered to executives. Across credit unions with $100 million or more in assets, nearly 60% of CEOs are given a vehicle for personal and/or business use and for nearly 15% it’s in conjunction with a car allowance.

Overall, 86% of credit union CEOs receive or are eligible to receive one or more types of perquisites beyond company cars and car allowances. Electronic equipment (e.g., cell phones, home PCs and/or laptops, and PDAs) and spousal travel are the most prevalent perquisites offered (see figure).

Severance pay, a provision central in protecting both the CEO and the credit union, is the final touch in a competitive compensation package. The average severance package for credit union CEOs covers 13.5 months worth of salary.

Understanding the principals of a competitive compensation package is the first step in competing for and retaining top CEO talent. The second step is making sure your CEO compensation package measures up against that of peer institutions. E-Scan’s 2003/2004 CEO Total Compensation Survey presents, just for that purpose, nationwide credit union CEO compensation figures categorized by asset size, region, and many other points of comparison for credit unions with assets of $100 million or more.

Other Issues of Research Review

Previous Issue:
Tying Staff Bonuses to Member Satisfaction Becoming Common, Contributes to More Frequent Use of Member Surveys