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Executive Compensation – Four Questions a Board Must Ask

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By Guy Collins, Principal, ECS

Today’s credit union boards are fully aware of their responsibilities and the added importance of their decisions with regard to the direction, success and continuity of their organizations. They are also much more attuned to an economic environment in which they have seen corporate credit unions fail, smaller credit unions merge into larger credit unions, and regulatory agencies increase their oversight. Board members are expected to be informed, knowledgeable, and ready to defend their decisions to regulators, auditors and, most importantly, members. One of the most important issues a board has to deal with is how the board attracts, retains and rewards its leadership team.

The process of determining an appropriate executive compensation package used to be considered as simple as determining what others were offering, and creating a package that would protect the credit union from losing its talent to its “peer” competitors. But this approach (looking outward) has not consistently been an effective way to determine compensation for the key decision-makers, who are entrusted with leading a credit union into the future. What is going on in the competitive environment is an important part of the process, and it should be a tactical piece of a strategic approach to executive compensation.

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