Consider Entire Executive Team When Building Comp Plan

Phil Tschudy

Rick Uhlmann

CUNA Mutual Group’s Albraccio Urges CUs To Use SERPs, Succession Plans To Prepare For High CEO Turnover

– In years past, credit union compensation plans focused primarily on the CEO. But the status quo is beginning to change, and credit unions must now recognize the need to address proper compensation for their entire executive team.

It is important to build a compensation structure that will maintain the executive team and provide stability during a time of transition, said CUNA Mutual Group’s Scott Albraccio, executive benefits sales manager, Monday, during a Discovery breakout session at CUNA’s America’s Credit Union Conference.

During the next five years, credit unions across the country are going to be challenged with the task of replacing their existing CEOs. The CUNA 2011-2012 CEO Total Compensation Survey suggests 21 percent of credit union CEOs will retire during that time.

To prepare, credit unions should develop proper compensation packages for executives and their top lieutenants. Deferred compensation plans for C-level executives can create “golden handcuffs” that will prevent them from leaving if a new CEO joins the team while providing continuity during the transition period.

Albraccio said without a proper executive benefits package in place, credit unions risk losing potential CEO replacements to organizations, competing banks and other credit unions. “Credit union compensation plans can no longer just focus on the CEO,” said Albraccio. “We also need to look out for our C-level executives, those that are likely to be the future CEOs.”

At the same time, existing CEOs are facing a potential compensation gap when they do decide to retire. The guidelines illustrated by ERISA (Employee Retirement Income Security Act) restrict the amount of money highly compensated employees can contribute to their 401k compared to lower-compensated employees.

On average, retiring executives receive 38 percent of their current income upon retirement, whereas frontline employees receive 60 to 65 percent of their income. Albraccio suggests credit unions begin implementing a Supplemental Executive Retirement Plan to eliminate the large disparity and avoid the potentially troublesome guidelines of ERISA.

Supplemental Executive Retirement Plans or SERPs provide a number of benefits for credit unions and their executives. SERPs put credit unions in a position to maintain continuity of strategic decision making while addressing financial needs of senior executives so they can focus on the long-term strategic goals and financial success of the credit union.

Albraccio also advised attendees to have a formal CEO succession plan in place that has an executive development component along with financial incentives to retain top talent. Only 63 percent of credit unions have a formal succession plan in place.

Some have a “real” succession plan while others have what he termed a “Break in Case of Emergency” plan. The latter is an emergency CEO succession plan that prepares the credit union for the death or rapid, unexpected departure of the CEO. It’s a short-term disaster recovery plan to keep the institution going until a new, permanent CEO is hired.

“The ‘Break in Case of Emergency Plan’ is important, but a true succession plan doesn’t just choose internal successors to a credit union’s top executive positions. It prepares internal successors, which provides more stability and consistency with the organization’s strategic plan.”

Albraccio noted that over the next five years 52 percent of employers in the U.S. will be challenged with filling critical positions. Desire for competent CEOs will be highly competitive, creating a high level of urgency for a useful succession plan.

Although few CEOs are likely to depart between now and 2013, it’s crucial that credit unions have a plan in place for such a scenario. SERPs can be a valuable part of a succession plan and will encourage a smooth transition if the CEO departs.

Some examples of SERPs include:

  • 457 Supplemental Retirement Plan (b and f)
  • 7872 Split Dollar Life Insurance Plan
  • Executive Bonus Plan
  • Executive Long-Term Care Insurance
  • Executive Supplemental Disability

“Begin developing and implementing succession plans and SERPs now before it’s too late. It’s imperative to recruit, retain, reward and retire our key employees or we risk losing to our competitors.”

CUNA Mutual Group insurance, retirement and investment products provide financial security and protection to credit unions and their members worldwide. With more than 75 years of true market commitment, CUNA Mutual Group’s vision is unwavering: To be a trusted business partner who delivers service excellence through customer-focused products and market-driven insight. More information on the company is available on the company’s website at

Insurance is sold through CMFG Life Insurance Company or CUNA Mutual Insurance Agency.  This insurance is not a deposit and is not federally insured or guaranteed by your credit union.

Representatives are registered, securities are sold, and investment advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, Iowa  50677, toll-free 800.369.2862.  Nondeposit investment and insurance products are not federally insured, involve investment risk, may lose value, and are not obligations of or guaranteed by the financial institution.   CBSI is under contract with the financial institution, through the financial services program, to make securities available to members.

CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates.

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