Sift Through Compensation Elements Carefully

In an increasingly competitive hiring market, more credit unions are emphasizing incentivized pay.


When Motorola Employees Credit Union ($857.1M, Schaumburg, IL) split from its parent company, the credit union was challenged with establishing its own compensation program to encourage productivity and retain key executives.

“For us, this was quite a change,” says John Fiore, president and CEO, of a year-long trial period for analyzing costs of taking over its 401(k), healthcare, and incentive program from Motorola. “We didn’t want to rush the process. We wanted to take our time and figure it out.”

Many credit unions are similarly cleaving from their parent companies and must establish their own compensation program. In some cases, credit unions that want to establish themselves as community-focused institutions and de-emphasize their corporate ties are changing their names, as Lockheed Federal Credit Union is doing by changing its name to Logix Federal Credit Union. And developing new compensation packages are often part of that new identity.

MECU, finding the cost of conversion would not negatively affect the credit union, worked with Motorola to transfer the 401(k) of its 100 employees, keeping the plan intact, including all outstanding loans to employees. It assumed responsibility for creating a merit-based salary bonus process and a compensation policy attractive to upper management as Motorola’s stock option plans that the credit union employees previously held were phased out.

MECU bases its compensation for all employees on a base pay and an annual incentive program. It’s established a base pay in roughly the 50th percentile of what its peers pay and offers bonuses to push compensation into the 75th percentile instead of simply offering a flat compensation in the more competitive range. Employees in the sales department can earn an additional 4% to 8% of half their salary each year and employees in supporting departments such as accounting and marketing get bonuses based on 100% of their salary.

“More credit unions should be looking to pay for performance and incent people to move beyond their job,” Fiore says. “It’s an important piece of how our compensation strategy is set up. We feel the incentives drive what we’re trying to accomplish – both annual goals and long-term goals. Incentives are a valuable piece of compensation.”

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To duplicate the vesting and rewards that Motorola offered its employees, MECU worked with CUNA Mutual to offer 457 deferred-compensation retirement plans to its CEO, executive vice president, and vice presidents – eight employees total. Fiore says the 457s “keep top managers focused on long-term success and the success of the credit union.”

MECU contributes an amount that reflects the executive’s annual performance to the 457 plan, which the employee cannot tap for five years. Retirees may cash out 100% of their 457 plan. The annual contributions are on par with the value of the stock that Motorola issues under its stock option plan. MECU employees embraced the 457 program because its rewards were close to what they were receiving under the public company’s compensation plan.

“It’s a retention tool,” Fiore says. “If you’ve been here for a while and you walk out the door, you leave money you’ve accumulated over five years.”

Similarly, SAFE Credit Union ($1.9B, North Highlands, CA) bases its compensation heavily in employee performance, says CEO Henry Wirz. The credit union uses regular member surveys and measures of member satisfaction derived from mystery shoppers, who are credit union members hired to complete a recorded transaction. The credit union ensures the various aspects of the transactions are handled correctly and compensates employees accordingly. The results of both member satisfaction measurements impact not only the employee but also their supervisors.

SAFE Credit Union also considers employee satisfaction, conducting an organizational assessment where employees can assess the performance of not only of the organization but also the managers who are responsible for it. In essence, it’s a 360-degree evaluation where the employees can assess their employers, an evaluation that Wirz says is key to compensation decisions.

SAFE Credit Union sets goals that include the usual financial metrics: growth, members, shares and loans, and net income. It also looks at the results of all third-party reviews that impact the operation, whether it’s a CPA audit or the state and federal examinations when setting annual compensations. With the help of a hired consultant with peer compensation data, it has identified 14 benchmark positions within the organization. Compensations are calibrated against those positions.

In the past few years, SAFE Credit Union has made several adjustments to its compensation strategy, Wirz says. The collections, call center, and  web services departments have become more important, so SAFE has established both compensation and non-compensation ways of making those jobs more attractive.

A non-compensation change in the call center was to move from a schedule with about three different shifts to one with 17 schedule options to offer more flexibility. The move has allowed the credit union to fill all the time slots it needs without having to change its compensation structure. “We can attract and retain people because we’re flexible with the schedule,” Wirz says.

On the compensation side, SAFE is now exploring whether to put SERPs in place for the senior managers. It wants to supplement what employees who have maxed out their 401(k) contributions may be losing so the credit union can offer more competitive retirement benefits.

“Think of employee compensation as an investment,” Wirz says. “The best thing you can bring to your credit union is motivated, satisfied employees who have a direct link between how well they take care of the members and how they are compensated. If you achieve that, you will have a superior credit union.”