The importance of compensation reviews for departing CEOs
As a credit union board, ensuring that your CEO is compensated fairly and competitively in the market, especially as the CEO approaches retirement or departure from the organization is essential. A compensation review is an effective way to ensure the outgoing CEO is taken care of by being compensated equitably in the market and to position the credit union to afford and attract the best available talent. Many long-serving executives are paid less than what the market is offering due to the lack of a formal compensation review process. Consequently, when these executives retire, the credit union may face challenges in attracting suitable candidates if it is not prepared to offer a competitive compensation package. A lack of awareness regarding market trends and the need for a regular compensation review process can create budget constraints, internal equity discrepancies, or difficulty justifying a salary increase noticeably higher than the outgoing CEO’s salary. When one considers the replacement costs of conducting an executive search alongside an unexpected salary increase, these expenses can be overwhelming if the organization has not anticipated and budgeted for them. Expenditures aside, credit unions cannot afford to put the wrong CEO in place, given their vital role in leading and ensuring the organization’s long-term sustainability. By taking proactive steps to conduct compensation reviews and stay up-to-date on industry trends, credit unions can better position themselves to attract the best talent and remain competitive in the market.
What is a compensation review?
A compensation review evaluates the pay and benefits package of the CEO and considers factors such as years of experience, performance level, industry standards, and tenure. It also considers the credit union’s overall compensation philosophy, including its approach to performance-based pay, equity, and benefits. The review may involve benchmarking the CEO’s compensation against comparable positions in other credit unions of similar size and complexity, analyzing internal equity, and assessing the CEO’s contributions to the organization’s success. The ultimate goal of a CEO compensation review is to ensure that the CEO is being paid equitably and competitively while aligning their compensation with the organization’s objectives and values. For departing CEOs, the goal of a review is to create market awareness before their departure and reward the executive fairly for their time at the credit union.
Timeline
- Compensation review (ideally one to two years prior to search)
- CEO search begins
- Offer made to final candidate
- Offer accepted
- CEO leads the credit union for 12 months
- Annual compensation review (recurs every 12 months)
Conclusion
Conducting a compensation review before your CEO leaves (ideally one to two years prior to their departure) is critical to attracting top talent and ensuring a smooth transition without any unexpected costs. Establishing a replicable process for compensation that is market competitive is equally important and will provide a solid foundation for the credit union and board’s future success.
Contact us today to learn more about our compensation services, or email johnpauloconnor@ddjymers.com.
