A Balanced Scorecard A Decade In The Making

One of Pennsylvania’s largest credit unions ties organizational performance to financial incentive while keeping members’ needs top of mind.

 
 

Top-Level Takeaways

  • Merck Sharp & Dohme FCU adopted a balanced scorecard more than a decade ago to track its progress toward four strategic objectives.
  • The scorecard, which has 11 goals, ties bonus incentives to financial performance, encourages employees to work in the best interest of the credit union and its members.

It was 10 years ago when Merck Sharp & Dohme FCU ($802.0M, Chalfont, PA) contracted a strategic planner to facilitate its annual planning session. The planner helped the board and executives at the Keystone State cooperative identify an operational strategy for the years ahead; starting with its key objectives and mission to better serve members, the credit union then set more narrowly focused goals.

Rather than leaving those goals in a file to be revisited only during quarterly board meetings, the credit union built out a balanced scorecard which allows its senior leaders and the entire organization to track its progress toward those goals.

Dana DeFilippis, CEO, Merck Sharp & Dohme Federal Credit Union

“The scorecard is the way we measure if we’re obtaining our goals,” says Dana DeFilippis, Merck Sharp & Dohme’s CEO.

The scorecard tracks a number of metrics important to the credit union’s organizational focus: membership growth, net income, ROA, asset growth, owned-assets ratio, capital ratio, bill payer penetration, home banking penetration, products per household, member survey response rate, and mystery shop levels.

In this Q&A, DeFilippis discusses the beginnings of the scorecard, where it lives, how it influences operations, and more.

Why did you adopt a balanced scorecard? How did you track goals before this?

Dana DeFilippis: We’ve always had goals, but they didn’t have as much organizational awareness as they do now. The scorecard is easier to understand and it helps us all work toward the same goals. No matter what department you’re in, what branch you work in, the scorecard helps us show that we as a team are all working toward the same strategic goals. It keeps us focused on what’s important.

For us, it’s also a tool that our board and senior teams use to determine performance-based bonuses.

Why did you choose the line items that you did?

DD: They fit as the appropriate metrics to follow based on our high-level objectives. And those objectives are:

  • Increase membership
  • Maintain optimal financial performance
  • Enhance products and services (with an emphasis on technology)
  • Attract, develop, and retain quality employees

As part of the new hire orientation process, we introduce employees to our goals and the scorecard itself. From the beginning of their time here, they know what we’re working towards as an organization and why.

How often do you review what’s on the scorecard?

DD: At our annual board strategic session we’ll review the previous year’s performance. Did we hit our asset growth target? Our other targets? Why or why not?

From there, we’ll review our objectives with the board. Are these still our focus for the next three to five years?

The goals themselves haven’t changed much in recent years, but the targets we set within each goal has. And with those, we can then set our goals accordingly.

How do you determine that?

DD: The targets are set based on past performance but with an eye toward what we think we can do in the future based on some of our projects for the year ahead — like if we’re building a branch in a new location or we know we’re introducing a new product. But the targets are also based on what’s happening in our local or national markets.

Now, we’re still heavily SEG-based, so we factor that into our forecasts as well. We’re not the same as everyone in our market, our membership is a little bit different. We’re primarily pharmaceutical and have some small businesses, and many of those have three employees or fewer.

Where does the scorecard live? How do you present it to your employees?

DD: It lives as an Excel file so I can easily transfer it into PowerPoint presentations for my board. It’s also part of our Microsoft SharePoint. We’ve looked into using other software tools, but we haven’t gone down that road.

We go over our progress in our monthly managers meetings and staff meetings, as well as at various times throughout the year. It’s also included in our monthly employee newsletter that goes out to all staff.

CU QUICK FACTS

Merck Sharp & Dohme FCU
DATA AS OF 06.30.21

HQ: Chalfont, PA
ASSETS: $788.9M
MEMBERS: 30,399
BRANCHES: 7
12-MO SHARE GROWTH: 8.3%
12-MO LOAN GROWTH: 6.2%
ROA: 0.29%

How else do employees engage with the scorecard outside of seeing the performance?

DD: One of the things we started several years ago was to create committees underneath our objectives and goals. These are groups of managers and high-potential employees who are developing. The idea is for these employees to review the objectives and come up with strategies for us to improve, whether that means hitting our targets or surpassing them.

Can you give me an example of their work?

DD: One of our committees focuses entirely on loan growth, which is something that impacts several of our goals. The three-person team meets regularly and will give presentations to our board with their ideas.

They’ve helped us introduce a lead generator tool and worked with staff on how to use that tool, including to cross sell, and other bits of education those employees can use to have more impactful interactions with members.

You mentioned part of this strategy was to tie financial incentives to goals. How does that work?

DD: We have four objectives and 11 goals under those. If we reach the target number for a certain goal, employees are paid a bonus for that performance. Each goal carries a different weight. For instance, our ROA goal carries the most weight, at 35%. So, if we reach that goal, employees are paid out at 35% of the total bonus pot. In addition, we also had stretch goals for certain metrics, which would trigger an additional bonus amount.

With the pandemic last year, we changed the incentive strategy slightly. Because we failed to reach several our goals, we introduced a third level to the target structure. Now, if we reach our threshold number, employees are paid 50% of the bonus; if we reach the target number, that’s the 100% bonus; and if we reach the outstanding number, it triggers a 150% bonus payment.

How did employees react to that change?

DD: Even if we don’t make the target, there’s now the ability to earn bonus performance, which is a good thing. We don’t always have control over some things, so it can feel like you’re doing all this work, you’re only a few basis points off the goal, and you don’t get anything from it. Last year, we surpassed 20% asset growth because we added more than $130 million in deposits. Well, our ROA couldn’t keep up. Everything was just thrown for a loop. This new bonus structure helps mitigate unforeseen circumstances while rewarding our employees for their work.

“Communication and buy-in from staff is key. They play the most important role in achieving every goal.”

Dana DeFilippis, CEO, Merck Sharp & Dohme FCU

Any best practices or pieces of advice you’d offer credit unions building a balanced scorecard?

DD: The biggest thing is having your board on your side. Ultimately, the scorecard is an easier way to track and present our most important goals and start conversations about our objectives, especially when you compare it to detailed balance sheets or income statements they might otherwise review. They’d rather focus on this high level.

I’d also say that communication and buy-in from staff is key. They play the most important role in achieving every goal.

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