Succession Plan Without Golden Handcuffs Just Wishful Thinking

From CUNA Mutual Group Public Relations

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Phil Tschudy 608.665.7188
Rick Uhlmann 608.665.8940

SAN ANTONIO – Credit unions may have a “so-called” CEO succession plan in place, but unless that plan has an executive development component along with financial incentives to retain top talent, credit unions risk losing potential CEO replacements to other organizations, including credit unions, said CUNA Mutual Group’s John Moreno Friday, during a CUNA Human Resources/Training and Development Council Conference breakout session.

Moreno, an executive benefits specialist with the insurer, said credit unions need to take a hard look at their succession plan and determine if they have a real succession plan or 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 to have, but it shouldn’t be the only plan,” Moreno said. “Essentially, it is the proverbial sealed envelope in the board chairman’s desk that names the next CEO. It’s not adequate by itself.”

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. Moreno cited 2011 research from the Krannert School of Management at Purdue University that indicated CEOs hired as part of an organization’s internal succession plan tend to stay longer and perform better—for less initial compensation—than the average new CEO.

“It’s about building bench strength, to use a sports analogy, and involves staff development rather than replacement. That requires nurturing and developing people, and it requires active involvement of the board of directors, chief executive and human resources functions.”

But even with a true succession plan, credit unions can still lose potential internal CEO successors to competing organizations, including other credit unions. Linking executive development with financial incentives is critical, he added.

“A successful HR pro is going to look to bring in talent by finding candidates who are already succeeding in other organizations. Unless you also provide monetary incentives to keep your top talent at your credit union, you run the risk of having your staff poached by others.”

That means creating “golden handcuffs” for top talent who could be a flight risk. Doing so makes their decision to leave the credit union difficult, if not costly. Plus, it makes it more expensive for the acquiring organization.

Moreno suggested aligning non-qualified deferred compensation arrangements with a sound succession and development plan.  “Part of creating a sustainable ethic of succession is building in a cost, beyond salary, for competitors to acquire your next-in-line executives. A properly structured SERP (supplemental executive retirement plan) adds to a competitor’s cost while creating a deferred compensation incentive for your executives to stay.

Executive salaries have increased commensurate with the size and complexity of credit unions over the years. The problem is tax regulations can limit credit unions’ contributions to pension and defined-contribution retirement plans. Executives also face Social Security maximums and potential limitations on disability insurance and corporate-purchased life insurance.

As a result, highly paid executives can generally expect a much larger gap than other employees between their pre- and post-retirement income.

Moreno suggested considering multiple options for closing this gap. Among these were:

  • “Non-qualified” plans such as a section 457(f) plan.  This plan is a promise of payment to the executive under agreed-upon circumstances, such as when the executive reaches retirement age or certain milestones—provided he or she stays with the credit union until that date.
  • A split-dollar life insurance program that can be used with, or instead of, non-qualified plans. This plan uses a combination of credit union financed premiums, a permanent life insurance policy and the tax treatment of life insurance to provide benefits to executives in retirement.

Due to potential tax and legal risks inherent in a plan design, he advised working with a qualified attorney and experienced providers for any type of non-qualified deferred compensation plans. “As with your entire succession plan, review them regularly so the next time your credit union must replace a top executive, the right person is already on board.”

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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