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Plan for Key Staff Transitions

Make sure compensation plans include entire executive team, urges Albraccio.

June 22, 2012
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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's 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 on Monday, during a Discovery breakout session at CUNA’s America’s Credit Union Conference.

During the next five years, credit unions across the country will be challenged with the task of replacing their existing CEOs. The CUNA 2011-2012 CEO Total Compensation Survey suggests 21% 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 other organizations, competing banks, and other credit unions. “Credit union compensation plans can no longer just focus on the CEO,” he said. “We also need to look out for our C-level executives, those who are likely to be the future CEOs.”

At the same time, existing CEOs face 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 401(k)s, compared with lower-compensated employees.

On average, retiring executives receive 38% of their current income upon retirement, whereas front-line employees receive 60% to 65% of their income. Albraccio suggests credit unions begin implementing Supplemental Executive Retirement Plans (SERP) to eliminate the large disparity and avoid the potentially troublesome guidelines of ERISA.

SERPs provide many benefits for credit unions and their executives, including the ability to maintain continuity of strategic decision making while addressing financial needs of senior executives, so they can focus on their credit unions' long-term strategic goals and financial success.

Albraccio also advised attendees to have a formal CEO succession plan in place that includes an executive development component along with financial incentives to retain top talent. Only 63% 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, which 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 during the next five years 52% of employers in the U.S. will be challenged with filling critical positions. Competition 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," urged Albraccio. "It’s imperative to recruit, retain, reward, and retire our key employees or we risk losing to our competitors.”

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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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