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Published December 6, 2023

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According to the latest industry survey data as compiled by DDJ Myers, an ALM First company, approximately half of all CEOs in the credit union industry are over the age of 55. For credit unions with $3B or more in assets, the percentage of leaders approaching retirement age is even larger.

How can forward-thinking cooperatives enhance their talent strategies to retain and reward current leaders while building a more robust compensation package to recruit new executives when the need arises? Understanding the latest trends and opportunities in executive compensation is a great place to start.

For example, 88% of CEOs currently leading $1B+ cooperatives have some form of Supplemental Executive Retirement Plan (SERP), which is a specialized type of retirement benefit designed for key executives and high-ranking employees within an organization.

A SERP operates in addition to the standard retirement benefits offered by the credit union, designed to bridge the gap between the limitations of traditional retirement plans and the financial needs and expectations of high-level executives.

When recruiting a new CEO, most offer letters from credit unions over $750M in assets now include an agreement to implement a SERP within 12-18 months after the new executive’s start date. As asset size increases, the number of other senior leaders, beyond the CEO, who are offered a SERP increases as well. Significant jumps occur when cooperatives reach $500M and $3B in assets. Plans are commonly offered to the entire C-suite, and as credit unions continue to grow, they are subsequently offered to all or most SVP/VP level executives.

Here are three steps to take now to ensure your credit union’s executive benefits package is keeping pace with the industry and remains attractive to both the current and future leaders who are vital to the long-term success of any cooperative.

1. Define your objectives

As we’ve discovered working with clients nationwide, each credit union’s goals and objectives are unique. Factors such as where your CEO and other senior leaders are in their career journeys, the market you serve, and your cooperative’s overall growth strategy can all impact the short-term and long-term objectives of your talent management strategy.

For example, is there an immediate need to recruit new talent due to an impending retirement or is retaining a long-term CEO for the next decade your institution’s primary objective? How can your plan structure align the institution’s objectives with your executives’ desires? Is a short-term, reward-based structure based on performance or a long-term incentive plan more attractive? How do retirement and estate planning factor into your mix? Are multiple options needed to retain executives from different age groups and aid in succession planning? Your answers to these questions and more should help dictate the size and structure of your plan.

2. Understand your options

SERPs can be highly flexible in their design. Employers have the discretion to structure the plans in ways that align with the organization’s goals and the needs of the executives. This flexibility may include options for vesting schedules, benefit formulas, and tenure requirements.

The most common types of SERPs are 457(b) plans, 457 (f) plans and Split-Dollar. For Split-Dollar plans, payouts are commonly based upon a percent of pre-retirement salary or a fixed dollar amount that is determined with discretion. These plans can be effective retention and recruitment tools, offering an incentive for established CEOs to continue working and making the position more attractive to the appropriate successor.

To truly understand the pros and cons of each of the many options available, you may want to enlist the help of an unbiased third party to act as a trusted consultant to enhance an existing plan or create a new one. Beyond traditional life insurance arrangements, there are now a multitude of options for you to consider in your SERP design. Take time to explore the possibilities today to ensure a stronger executive talent strategy tomorrow.

3. Evaluate your current plan

If your current plan was created some time ago for your existing executive team, it’s time to take a hard look at the structure and incentives you’re offering. As ALM First Executive Benefits consults with clients, we often find that existing plans are undersized for today’s needs. The market pressures and labor market we’ve seen in recent years, in addition to the number of industry CEOs nearing retirement age, have created an urgent need for boards to re-think and strengthen executive benefits plans.

Specifically, the Long Term Applicable Federal Rate (AFR)—a key factor in the funding of Split-Dollar plans—has increased substantially from 3.92% in November 2022 to 4.83% as of November 2023, while salary adjustments which may have previously been projected to increase just 3-6% per year have risen dramatically with some hitting the 10% range in recent months. Higher interest rates and higher inflation coupled with a more competitive job market may have taken a significant toll on existing executive compensation plans – even those created just a few years ago.

Another common trend we’re seeing is the expansion of plans beyond the CEO and the c-suite. As credit unions grow, their executive benefits plans begin to cover many or all senior vice president and vice president level roles. For forward-thinking institutions focused on succession planning, these expansions can be critical recruitment and retention tools.

Contact us to learn more about how to evaluate and enhance your executive compensation package and prepare to effectively compete for a shrinking pool of CEOs and other senior level talent in the years to come.


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Tom Sievewright

Tom Sievewright rejoined ALM First in 2023 as a Director in the Executive Benefits subsidiary. In his current role, Tom is responsible for developing innovative solutions geared towards retaining key executives for financial institutions.

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