Variable Pay Trends in Credit Union Executive Compensation

by Megan Mohr, CCP, Compensation Consultant
HR Performance Solutions

Each credit union executive earns his or her annual salary for the work performed for the organization. However, in addition to base pay, credit union executives are often incentivized through variable pay. This additional compensation is typically earned by meeting predetermined standards for individual and organizational performance. Because the size of the reward is determined by the degree to which specific goals were met and the potential exists for no payment to be made, the variable pay component is often referred to as pay at risk.

In recent years, variable pay has become a very popular mechanism to reward senior management. Since the rewards are typically tied to organizational or individual performance, these payments are easily defensible. The trend in executive compensation continues to include variable pay and shows a steady increase in its use. The most obvious benefit of variable pay plans is their ability to motivate executives by financially incentivizing them to pursue activities that result in positive outcomes for the credit union. At its core, variable pay should pay for results. Another reason many organizations have found variable pay plans to be desirable is from an economic perspective. When economic circumstances are tough, variable pay can still be utilized to motivate employees and result in positives for organizational success as well. The general consensus is that variable pay plans have the potential to be very positive for an organization. However, great care should be taken to ensure that the plan is properly implemented and administered.

In 2013, between 75% and 80% of credit union executives were eligible to receive variable pay. Data available indicates that these variable pay offerings are predominately based on organizational performance, though individual performance can sometimes be a component as well. Some of the most common metrics used to measure organizational success, and therefore the size of these payments, are return on assets, loan growth, membership growth, expense ratios, and net income. Below is a chart which indicates the percentage of credit unions using various metrics to determine the payment of variable pay to credit union executives.

  

In addition to the criteria listed in the above chart, other metrics which may be used by credit unions are: savings growth, board evaluation, gross income, number of services added, membership satisfaction, net worth, asset growth, strategic initiatives, savings/checking growth, products/services per member, employee satisfaction, charge-offs and net promoter score.


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