SUCCESSION PLANNING WITHOUT RETENTION PLANNING IS A HOUSE OF CARDS
CEO succession planning can lead to a great internal successor. However, succession planning should not stop at the CEO. A key component of succession planning is retention planning for key executives and failure to provide comprehensive strategies for key leadership positions can leave the credit union vulnerable. Without a well-developed retention plan for C-suite and other key management positions, a credit union could face significant challenges in filling critical leadership roles. “Proactive, ongoing succession planning for key positions is essential to mitigate these risks and ensure a smooth transition of leadership.”
Key Takeaways
· Succession planning requires retention planning for the CEO and key executives.
· Increased “executive poaching” sabotages successful succession planning and key executives are very expensive to replace. Estimates suggest that it costs between 200% and 400% for every hundred thousand dollars of compensation to replace a highly compensated employee.
· Today, the credit union employment market is highly competitive, and nonqualified deferred compensation plans, such as Supplemental Executive Retirement Plan (SERP) arrangements are a highly successful strategy to retain key employees.
· Solution Showcase: Acumen Financial Advantage – a game changer for credit unions.
SUCCESSION PLANNING IS CENTER STAGE
Background. On December 17, 2024, the NCUA issued the final rule requiring credit union succession planning to become effective on January 1, 2026. While the regulatory and industry comments preceding the adoption of the final rule primarily focus on the NCUA’s intention to mitigate the high number of credit union mergers – particularly of small credit unions – the boards of all credit unions, regardless of asset size, must either review or adopt a regularly reviewed succession plan as well as adopt a key executive retention culture.
Why larger credit unions? According to America’s Credit Unions, only 54% of credit unions have a succession plan. Recruiting and poaching activities focused on key executives of billion dollar financial institutions are becoming more prevalent, threatening to weaken the “bench strength” of larger institutions. Furthermore, recent Gallup reports that half of U.S. employees are open to leaving their current job.
A CLOSER LOOK AT THE FACTS: AGING SENIOR MANAGEMENT
Nearly one third (29%) of credit union CEOs are aged 60 years and older and half of CEOs are aged 55 and older. “Regular benchmarking of executive compensation and benefits against peers is crucial for credit unions to remain competitive in the talent market. It helps ensure that compensation packages align with industry standards and meet the needs of executives. Credit unions need to prioritize succession planning for CEOs and other key executives nearing retirement, and tailor benefit packages to individual preferences.
Turnover of potential successors to a retiring CEO. Half of U.S. employees (51%) are considering or actively seeking a new job, continuing a recent upward trend. While voluntary employee turnover rates have stabilized since the Great Resignation due to cooling economic and job markets, employees’ long-term commitment to their organizations is currently the lowest it has been in nine years.
Employee retention challenges are emerging, and failing to act could lead to costly replacements in the future. Gallup estimates that the replacement of leaders and managers costs around 200% of their salary, the replacement of professionals in technical roles is 80% of their salary, and frontline employees 40% of their salary.
According to Gallup, self-reported employee turnover risk is at its highest point since 2015. As of May, 2024:
· 51% of US employees are watching or actively seeking a new job.
· 42% of employees who voluntarily left their organization in the past year report that theirmanager or organization could have done something to prevent them from leaving their job.
· 30% of turnovers could have been prevented with additional compensation or benefits.
To read complete article click here