Tag Archive for credit union

Aligning CU Executive Incentives With CU Goals and Member Needs

By David Frankil, President, Burns-Fazzi, Brock and Associates

Dr. Jack Clark from Clark Research Associates presented the results of the 2014 NAFCU-BFB Executive Compensation and Benefits Survey at this summer’s NAFCU Annual Conference.  There were many tidbits in the presentation, but one topic caught my eye – the wide variety of incentives that Boards have used to create bonus plans for top executives.

The topic of how incentives affect behavior is far from new – go back to freshman-year economics and Adam Smith –

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest.”

Adam Smith, An Inquiry into the Nature & Causes of the Wealth of Nations, Vol 1, March 9, 1776

Just as water finds its own level, economic activity naturally seeks its highest and most efficient use.  That’s not to say that the greater good is subverted to individual self-interest, rather that well-designed compensation models effectively align individual incentives with desired outcomes that benefit the credit union, its members and top executives.

On that we can probably all agree – but what are the metrics and desired outcomes that will create optimal goal alignment?  To use a baseball analogy, home runs are great – but rewarding players just based on home runs would result in tons of shortstops and second basemen batting .075 as they swung from the heels every time up at the plate.  You’d have a hard time finding anyone who wanted to pitch too.

First off, what sorts of credit unions offer bonus plans tied to incentives?  On average, only half (49%) offer bonus plans tied to incentives, with the tipping point being around $150M in assets.  The survey clearly showed that mid-size and larger credit unions are more likely to offer them, with roughly 80% of the credit unions between $150M and $750M, and 90% over $750M, doing so.

Hard to know what is cause and what is effect here – have the larger credit unions figured out how effective bonus incentives can be in driving growth, or are they using these bonus models because they can better afford them?

Second, what is the metric most often used as the incentive?  Given how similar most of our financial services business models are, you’d naturally expect to see a high degree of commonality in the incentives used.  And you’d be wrong – see the chart below.

While “Loan Growth” topped nearly everyone’s list at 70%, after that you see a cluster of metrics such as Return on Assets (ROA), Net Worth, Membership Growth, and Net Income Growth – and then a broad range of others from Delinquency to Employee Satisfaction and Asset Growth, with Compliance coming in dead last.  We can only assume that is not an indicator that compliance is unimportant, just that it is expected to be done right regardless of incentives.

The other conclusion we draw from this chart is that many credit unions are apparently using more than one measure of success for incentives tied to bonus.

Now that we know there are a variety of measures, the next question is whether there are any patterns that emerge based on credit union size.

Once you get past Loan Growth as a common metric, larger credit unions tend to be more focused on ROA, Membership Growth, Member Satisfaction and Products/Services per Member – and smaller and mid-size credit unions tend to be focused on Net Worth, Net Income Growth, Delinquency Measures and Strategic Initiatives.

There may be some crossover here – I’d be surprised if “Strategic Initiatives” didn’t include some of the other specifics cited, for example.  But Net Worth, Net Income Growth, and Delinquency Measures must also be important to larger credit unions too.

Not sure there is any one explanation, but taken together it looks like the larger credit unions tend to be focused on “making the pie bigger” – in particular, the focus on membership growth and products/services per member.  Think of this in the context of indirect lending – just growing an indirect lending program can certainly help with net worth and net income growth, and you’d have to be concerned about delinquency rates too.

But transforming a single indirect lending transaction into a broader relationship with multiple solutions that positions your credit union as the primary financial institution can yield benefits across many of the metrics cited.  And the long-term relationship will continue to yield in the future long after the indirect loan had been paid off, assuming that individual remains a satisfied member.

The survey contains many more interesting insights into credit union compensation and executive benefits.  If you’re interested in learning more, a recording of Dr. Clark’s recent webinar is available online, along with his presentation slides. You can find the recording, and the schedule of upcoming free webinars, at www.nafcu.org/BFBwebinars.

For a copy of the NAFCU-BFB Executive Compensation and Benefits Survey, contact Liz Santos at lsantos@BFBbenefit.com.


Developing the Next Leaders Within Your Credit Union

By Peter Myers, MSC, PCC, Vice President, DDJ Myers

If I told you that you could handpick a group of leaders who would be perfectly invested in your credit union, would you jump at the chance? Now what if I told you these potential leaders may be individuals who you already interact with every day? Of course, I’m talking about looking within your own organization and identifying emerging leaders from your staff, and then providing them the training to transform into leaders and thinkers who exceed expectations for both you and your members.

Who Is an Emerging Leader in Your Credit Union?

To identify emerging leaders within your ranks, I encourage you to cast a wide net and look beyond obvious candidates such as vice presidents and other upper management. Perhaps there’s a team leader, a department manager, or a teller supervisor who has shown leadership potential by delivering excellent member service or proactively helping on team projects. By paying close attention and identifying those employees who put your credit union values into action, you may be surprised at how many of your staff have the potential to exceed expectations and grow into leadership roles. Read more

Congratulations to our 2014 Innovation Award Winners!

We all feel the strain of keeping up with the changing times.  Many credit union CEOs agree that attracting and retaining members is one of the top three challenges that credit unions face. In order to meet the ever-evolving needs of members, credit unions should rely on innovative solutions to add to their product portfolio. Innovation plays a crucial role in the credit union industry, which is why we recognize ingenuity and inventiveness  through the NAFCU Services  Innovation Awards. This year’s winners have created  outstanding innovations that help credit unions thrive in an increasingly saturated financial services market. They are:

Insuritas. The InsureNOW™ product was designed for credit unions with large member bases, big data CIF/CRM capabilities, and high member affinity levels. InsureNOW™ allows credit unions to provide highly customized, concierge-level insurance offers to their indirect borrowers at the very moment when the member intends to shop for insurance. The most innovative part of InsureNOW™ identifies insurance policy renewal dates for each member and generates targeted, automated pre-populated e-engagement communication to these indirect borrowers 30 days before their insurance policy renews.

DDJ Myers. The Board Performance Assessment was developed to meet the need to support credit union boards. The assessment is designed to guide boards in reaching their highest level of performance, and create a high standard of excellence between board and CEO, one of the most critical interactions within the credit union. The innovation lies in the assessment’s ability to make boards more cohesive and pinpoint critical areas where improvements could be made.

Burns-Fazzi, Brock. Their Executive Benefits Learning Series helps credit unions understand effective methods for executive compensation and benefits to help recruit, retain, and reward their executive team. Complex topics in executive benefits and compensation are broken down into tax, accounting, legal, regulatory compliance, funding, and administrative concepts allowing credit unions to increase their knowledge and gain free practical advice. The innovative series consists of monthly, free live webinars which are recorded and archived for future reference.

For a recap the of 2014 NAFCU-BFB Executive Compensation & Benefits Survey, register for this webinar on August 20.

Allied Solutions. UniTrac is a proprietary insurance tracking system that benefits credit unions by reducing the risk associated with collateralized loan portfolios. The tracking solution is completely workable online for credit unions through their client portal: CenterPoint. CenterPoint offers clients full access to insurance history and document images, letter notifications, customer service call notes, and claims. Lenders are able to view, work, print and download reports, submit claims, update required data fields and chat online with Allied representatives.

Join Sundeep Kapur as he discusses the future of credit unions in this week’s webinar.

A big thank you goes out to these companies and all of the other entries who continue to provide credit unions with innovative solutions that drive success.

Preferred Partners to Shine at the 47th Annual Conference in Las Vegas

Join the more than 1,200 credit union leaders, experts, and solution providers gathering next week at NAFCU’s 47th Annual Conference and Solutions Expo to discuss the most pressing issues impacting the industry. A wealth of education, innovation, and networking opportunities will energize you and your team and positively impact your operations and bottom line.

Be sure to schedule an hour on Wednesday afternoon to hear John Ulzheimer’s thoughts on Credit Scoring: Separating Myth from Reality. John, a nationally recognized credit expert, always gives fascinating insights on the credit union universe. This session, presented by VantageScore Solutions, is scheduled at 1:00 pm and repeats at 2:15 pm.

Many of our Preferred Partners will also be in Las Vegas to meet you and to share their innovations and solutions at 16 educational sessions outlined below. Note that many sessions will be repeated this year so you don’t have to choose. Download a schedule at a glance with times and room locations.

It’s not too late to join your colleagues in Vegas. Register for the convention here.