“Which is more important for the long-term success of your credit union: the board or the CEO?” The question, often...
Apr 20 2015
Should Credit Unions Pay Their Directors?
Welcome to the emerging world of credit union director compensation. Many feel that paying boards is anathema to the cooperative spirit of credit unions, while others feel compensation is an obvious and overdue benefit. This report acknowledges that dilemma while trying to quantify just what existing compensation trends look like: How prevalent is director pay? What does it look like? And how does it affect the performance of credit unions that use it? Researchers scoured state laws across the country and then examined IRS Form 990 filings for every state-chartered credit union in the states that allow director compensation. Common director expenses like travel reimbursement and conference fees (allowed for all credit unions) were ignored. Considered were items like annual or monthly cash payments, meeting fees, payments for health insurance, and any compensation beyond routine reimbursements.
For every argument in favor of compensation, there’s a corresponding caveat. Yes, board pay may help you attract and retain more qualified candidates, but it could also lead to greater entrenchment among existing board members. Yes, paying directors allows for greater director accountability, but it could also threaten credit unions’ tax exemption. And so on. This research lays the groundwork for a productive discussion: For each argument, for and against, the report offers discussion questions. Beyond the discussion guide, consider the following recommendations:
- Continually assess the flow of accountability and authority in your credit union. Before you get to compensation, get the board on a solid leadership footing. Without a deep understanding of the board’s legal, fiduciary, and philosophical duties, the impact of potentially valuable tools such as board compensation is limited and governance risks are magnified.
- Assess the effectiveness of your board and directors on an ongoing basis. The implementation of formal board and director evaluation processes is a good way to identify opportunities for improved effectiveness. With or without compensation, evaluation processes such as peer review yield similar opportunities at the individual director level, providing directors with guidance and highlighting when turnover may be necessary.
- If compensation is important, petition your state league. Recent compensation changes in Tennessee and Washington show that motivated credit unions can make the change.
Filene thanks our generous partners for making this research possible.