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Defend Your Executive Pay Practices

A well-designed, well-documented compensation plan is the best defense against regulator inquiries.

June 01, 2011
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Credit unions have new requirements regarding executive compensation as part of the financial regulatory reform bill, the Dodd-Frank Wall Street Reform and Consumer Protection Act.

This is just one example of increasing regulatory oversight and scrutiny on boards and their executive compensation decisions.

The best defense for any board when regulators ask questions about compensation is a well-designed and documented executive compensation plan.

Overall, executive compensation should be:

  • Equitable;
  • Defensible;
  • Legally compliant;
  • Perceived as fair by employees;
  • Competitive; and
  • Reflective of your compensation philosophy.

Determining appropriate benchmarks and selecting peer group data are key steps in designing an effective executive compensation system. But base salary represents the bulk of a credit union CEO’s total compensation package.

On average, base salary accounts for 86% of CEO total compensation among credit unions with $100 million or more in assets, according to CUNA’s 2010-2011 CEO Total Compensation Survey Report.

Regularly review all components of your credit union’s executive compensation plan, including base and variable pay, executive benefits, perquisites, and severance.

Also review performance factors that determine variable pay in view of current business realities and objectives. Determine how balanced they are, and how this balance drives both individual and organizational performance.

Boards must analyze the components in terms of how well they work together as a whole to support business strategy and goals.

And finally, they must make sure the peer group and sources for compensation comparisons remain appropriate for the market.

BETH SOLTIS is a senior research analyst in CUNA’s business to business publishing department. Contact her at 608-231-4056.

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Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory (www.appreciationatwork.com/assess) will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

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