By Charles Shanley, JMFA
As a Board member for your credit union, hiring and retaining the right CEO is the most important decision your Board will make. And despite the challenging economy and the number of candidates that may now be available for your open position, the compensation package you offer will almost always be the number one factor in securing and retaining a top-notch CEO.
There are many factors to entice a CEO to your institution beyond the basic salary and benefits package you offer. Such things include a family-friendly work environment, a stable industry and a high-performing culture.
But once on board, how do you continue to motivate and incent your CEO to ensure peak performance for your credit union?
Let’s start with a compensation package first, then explore how you can creatively build on that package through a number of initiatives that will encourage your CEO to be the best he or she can be.
Start with the basics and build from there
Clearly, the salary and accompanying benefits you offer will always play a crucial role in recruiting a CEO. To secure a highly qualified candidate, you’ll need to make certain the base salary is at the very least competitive with – if not better than – other financial institutions in your region. Then consider other ways for your CEO to increase his or her compensation over the years, such as annual percentage increases and/or bonus opportunities.
When it comes to bonus compensation, there are a variety of metrics that can determine an amount, such as:
- asset growth;
- loan growth;
- member satisfaction/retention;
- employee satisfaction/retention; and/or
- increased number of products offered to the members.
Insurance coverage will also be highly important for the CEO and his or her family. Typically 100 percent of the CEO’s health insurance premiums are paid for by the institution. In addition, a term life insurance policy is a common part of the package.
Outlining the employment agreement
For most credit union CEOs today, a three- to five-year employment agreement is standard operating procedure, and will include a number of elements designed specifically for the individual hire. The agreement will define the total compensation package – salary expectations, bonus criteria and insurance coverage – and will often include a “supplemental executive retirement package.” This retirement package should ‘incent’ your CEO to remain with your organization for the long term, something that is important to your credit union’s ultimate success.
Additional elements in an employment agreement include “perks” that are appropriate for your CEO, such as a car or car allowance, and reimbursable expenses such as professional dues and educational expenses. The agreement may also include memberships to such organizations as the local Chamber of Commerce or Rotary group, and occasionally membership to the local country club.
The employment agreement will also outline how and when a CEO would be terminated. It will spell out various causes for termination and what – if any – termination benefits may be available when he or she leaves. If, on the other hand, the CEO chooses to terminate his or her employment, the agreement will typically state that no severance compensation will be provided, other then vested benefits such as vacation, life insurance and/or retirement program benefits already accrued.
Creating an environment in which a CEO can succeed
Your goal as a Board should be to maintain a “hands off” management philosophy. The Board should set the strategic direction for the credit union – and provide all of the appropriate oversight required – but leave the day-to-day management up to the CEO. Since this officer is the Board’s only “direct report,” if you clearly outline the job accountabilities, you should stay out of the way of daily leadership decisions.
Non-financial benefits (“soft perks”) are also important
One non-cash compensation factor that can make a very positive impact on your CEO is offering educational opportunities, which can include anything from week-long executive education programs, to day-long seminars or even webinars. Of course expense reimbursement for all of these functions would be important.
Because most credit union CEOs are active in their local communities, they attend various meetings and events at all hours of the day, which takes time away from home and family. For that reason, encouraging your CEO to bring his or her spouse along to an educational retreat or conference, and covering the additional expenses incurred, is frequently a valued and much appreciated gesture.
Provide growth opportunities
Another important aspect of motivating your CEO is to ensure the Board is “challenging” him or her continually improve the credit union’s performance. Otherwise, chances are that you will find yourself in the search and recruit mode again before you know it. Talented, ambitious leaders won’t be happy for long in a status quo organization.
Don’t forget to recognize and thank your CEO
One of the easiest – but most often overlooked – ways to motivate a CEO is to recognize him or her through an occasional pat on the back and/or words of appreciation. Although your CEO is “at the top of the food chain” in terms of your employee base, that doesn’t mean he or she doesn’t need periodic encouragement. Everyone needs to know when they are doing a good job – including the person at the top. So it is extremely important to be encouraging and appreciative of the CEO’s efforts, especially when he or she appears to be going the extra mile for your credit union’s employees, its members and your local community.