Credit union mergers leave executives challenged with how to effectively establish a single compensation policy for the new institution that satisfies the two previous workforces and fits the credit union’s budget.
It’s no easy feat. Credit unions can’t easily pluck the best compensation components from each merging institution to create the most successful compensation package because the policy must be financially feasible for the new credit union. A credit union might not be able to support the high base-pay rates from one credit union along with the generous fringe benefits of another.
“Our approach to developing a compensation program for a newly developed entity was to take a step back and approach it holistically,” says Monique Little, vice president of human resources, First Tech Federal Credit Union ($5.4B, Palo Alto, CA).“So as you make decisions about how to design compensation plans, you’re looking at the entire compensation package.”
First Tech Federal Credit Union is the result of a 2010 merger between First Tech Credit Union, one of the largest credit unions in the Pacific Northwest, and Addison Avenue Federal Credit Union, which served the employees of Hewlett Packard Company among other technology companies. It now has about 775 employees, according to Callahan & Associates’ 1Q 2012 data, that’s up from the 424 employees in 4Q 2010, which was the quarter preceding the official merger on Jan. 1, 2011.
It’s imperative that merging institutions combine various systems into one to preserve employee retention and ensure employees do not feel like they incur losses, according to the Journal of Accountancy. Employee satisfaction might not hinge solely on pay and perks, but those factors are crucial.
We had to drill down to the individual employee level. It was tedious and created a lot of angst.
The merger between First Tech Credit Union and Addison Avenue Federal Credit Union was a merger of equals, but the merger of compensation policies was not so easily balanced, Little says. The new credit union’s official strategic plan was not fully flushed out through the creation of a new compensation policy, which made the process complex.
The merger blended credit unions from two very different markets, with Addison Avenue FCU in Silicon Valley’s Cupertino, CA, and First Tech CU in laid-back Oregon. One of First Tech FCU’s first key moves was to look at the whole picture — the components of both institutions’ compensation packages — and understand where both stood premerger. Executives conducted an inventory to understand all the programs it had and sorted through the evaluations, identifying the best compensation parts. The goal was to create a balanced package that would retain all employees and provide similar compensation for employees in equal roles.
"We had to drill down to the individual employee level," Little says. "It was tedious and created a lot of angst."
During a merger, conduct routine internal surveys to ensure you know how employees feel about compensation and benefits changes.
First Tech FCU surveyed its new diverse workforce to learn what benefits employees valued most and found most employees prized competitive base pay, good health insurance, and access to a retirement plan over other perks such as paid time off. So it developed a new compensation package that was a hybrid of both First Tech Credit Union’s and Addison Avenue Federal Credit Union’s compensation plans, blended into something that aligned with the still-developing strategy of the new organization.
Although Little declined to detail the exact components of each credit union’s compensation package, she said the merging credit unions offered different salaries for the same positions. Because of that, First Tech FCU had to develop a plan to put the pay of employees in the same positions on par with each other, and is slowing and accelerating pay increases over a three-year period.
Then, top executives provided talking points to managers about the new compensation and benefits program to managers so employees would feel comfortable talking about it with someone instead of “hearing it from the top.” One credit union’s employees lost their pension plans but, under the new program, they received loan discounts and other benefits that offset their losses.
“We softened the message of the change by pointing out where they would gain,” Little says. “It’s really keeping employees focused on the big picture and not getting hung up on a single compensation or benefit. It’s making sure we articulated all the tradeoffs.”
The credit union surveyed employees about their preferred benefits before merging and then continued to poll them about their feelings during the merger process. The credit union found its employees expressed the same satisfaction level about their compensation throughout the merger. Employees would admit they weren’t happy about the change, but they said they understood what the new total rewards plans would look like. They also said they appreciated the communication.
First Tech FCU is still communicating that long-term expectation to employees so they don’t expect instant changes. It’s a continuous process for the credit union, but considering its employees’ perspective and gauging their reaction along the way has helped ease the transition and retain talent.
“Don’t assume you know your employees,” Little says. “Take the time to get to know who they are. We didn’t have a mass exodus, and we had employees with significant changes in their compensation packages.”