In December 2006, the School of Hotel Administration at Cornell University published a study that demonstrated a 1% raise boosted employee job performance by 2%. The same 1% raise offered in the form of a bonus improved job performance by almost 20%. The relationship between pay and performance relates to credit unions beyond HR. This same psychology might also be at play with year-end rebates.
Beyond standard loyalty points and credit card rewards programs, how are credit unions differentiating themselves to their members? 340 credit unions gave interest refunds at the end of 2006 totaling $67.5 million. Other CUs also gave dividend bonuses, but this data is not separated in the call reports from regular dividends. Offering an interest refund or bonus dividend can be useful for many departments of the credit union. The marketing team has added benefits to publicize; the front line can cross-sell products more effectively; and your financial analysis team may be able to reduce capital or net worth in unique and efficient way.
Lessons from a Credit Union
Atlantic Financial ($59M in Hunt Valley , MD) gave a 10% bonus dividend and a 10% interest refund to members in 2006. Each member has a new non-interest bearing share account created expressly for the bonus dividend and/or interest refund. Statements are sent to account holders for six months before the funds are transferred into the member's primary account. Members have become familiar with the practice, offered in varying levels over the past five years, and now question tellers at the end of the year as to the percentage to be refunded.
A Retail Experience
REI, Inc, the nation's largest consumer cooperative, has more than three million members in the institution. Members join through a $15 one-time membership fee and become eligible for a variety of benefits that parallel those of a financial institution, including a variety of discounts and a credit card only available to members. Something else to consider at this time of year: REI members also receive an annual dividend – normally 10% of each member's eligible REI purchases. The more often a member purchases REI's products and services, the more they are rewarded.
Giving loan interest refunds or bonus dividends to the member doesn't guarantee automatic recognition by members or within your community. Credit unions (and retail organizations) must remain competitive in order to grow. Patronage refunds at almost all credit unions are subject to credit union performance and such things as unexpected operating expenses. In the end, you are putting your members' money to work. Should you give it a bonus?