Salary Disclosures Are the Tip of the Spear

Take a look at different credit union approaches to executive compensation disclosures. The ultimate goal of disclosure is to sustain members’ trust with the credit union.

 
 

In last week’s article, we explored the question, What Is the Member’s Right to Know?. We touched on the most sensitive issue for many CEOs and senior managers, which is the publication of their salaries and benefits. Reader feedback was interesting. Can salary disclosures play a role in credit unions’ efforts to sustain trust with members?

In November 2006, the Government Accounting Office (GAO) issued a report (GAO-07-29) to the chairman of the U. S. House Ways and Means Committee.  One of the purposes was to “assess the transparency of credit union senior executive compensation.”

The Report’s conclusions are blunt:

            “Credit union executive compensation is not transparent.  Federal credit unions, unlike other tax-exempt organizations, do not file information returns which contain data on executive compensation . . . .”

This is not true of all state chartered credit unions, however.  The 990s filed by credit unions in states such as Oregon, Washington, Arizona and Florida can be reviewed online, showing the required information on compensation.

However, disclosure without context could be a troublesome member issue.  So a proactive approach might include factors used by the board to evaluate and reward management. These factors might include:

  • Critical performance goals
  • Key member value enhancements
  • Community investment
  • Institutional performance versus peers
  • Executive compensation benchmarks in the industry

When salaries are disclosed as components of the credit union’s performance, then members can see how the board works on their behalf using the compensation system.

For example, disclosure could help members see how pay is tied to performance, the alignment of management and member interests, the relation of their executives’ salaries to market salaries and the focus on long-term versus a short-term outcomes. 

Approaches to Disclosure
CEO salary disclosures can occur in different ways. State Employees’ Credit Union’s ($14.6B in Raleigh, NC) is direct and proactive. The salary and benefits of CEO Jim Blaine is linked from the credit union’s home page to its 2006 Annual Report. On page 27, amongst a discussion of employee benefits, it reads, “The salary and benefits of the President totaled $547,465 for the year ending June 30, 2006.”

Another “unveiling” is through the public media. Two years ago, there was a press controversy surrounding Onpoint Community Credit Union ($2.3B in Portland, OR), formerly Portland Teachers Credit Union. The disclosure of the now retired CEO’s salary of $1.6 million, coupled with one member testimonial of a poor experience, sparked quite a dialogue in a local online news article

Sustaining Trust
While salaries draw the attention of members, employees and the press, the real issue is how transparency in all credit union activities can be a vehicle for sustaining the trust that cooperatives rely on in the marketplace.

In an environment in whic consumers are increasingly victims of financial misrepresentation; credit unions can use proactive disclosure as a marketplace difference.

 

 

 

May 28, 2007


Comments

 
 
 
  • Great article Chip. Have a look at this Canadian CU article today titled Top dogs at beleaguered N.B. credit union got big bucks, review shows

    Perhaps this is a sign of things to come with disclosures here in the US. For example, expect the media to use the data in different ways (mostly to point out excesses).

    So, a good thing or a bad thing for members and mgmt? On the whole it is probably a good thing to avoid obvious abuses such as the Canadian example.

    However, good managers must be compensated at fair market rates for the banking industry despite FOM salary norms...otherwise, without good managers, the members'' credit union is less likely to return the most value back to them. Meaning: the members'' money, loans, and convenience services will not be leveraged in their best interests as a cooperative...not to mention the growth required to return maximum value as well.

    In short, a credit unions ability to return maximum value to the membership is most related to the effectiveness of the managers and their teams that run them. This talent does not, should not, and can not come at discount prices. Members and BOD will need to be educated on this should top salaries be disclosed or risk loosing the vital talent needed to member jealousy.
    Anonymous
     
     
     
  • As in publicly-traded companies and in 501(c)(3) nonprofit organizations, the total compensation of top CU executives should be publicly disclosed. Secrecy breeds distrust.
    Ron Bensley, Jr.
     
     
     
  • ALL credit unions need to start disclosing management salaries in their annual report to members.
    Jerry
     
     
     
  • The CEO and Senior Management Team salaries should be disclosed, just as they are for publicly-traded corporations. The total compensation that is already disclosed in Fortune 500 companies continues to grow, (even after government bailouts), and it is rare that shareholders can organize to change any individual's pay package, unless they are under performing. It is better that the industry self-regulate than having the government do it, because Uncle Sam may throw in a few extra disclosures just for good measure. And with today's media, this issue could turn into a fox hunt overnight.
    Credit Union Member