By Ray Birch
LAKE TAPPS, Wash.—It’s become an ethical question for the aging CEOs and managers of many struggling credit unions, according to one person—do they seek out a merger in order to provide members with more services, or do they hang on until they get paid?
CEO Advisory Group’s Glenn Christensen said the issue has become a quandary for many leaders of many smaller credit unions especially who are staring down how they will make a living in their final working years.
“Sure, these payouts to credit union CEOs have come under scrutiny,” acknowledged Christensen, pointing to several CUToday.info articles that have addressed CEOs receiving payouts as a result of a merger, including in cases where the members don’t receive any capital distribution. “But I argue that these payouts are earned, deserved and necessary for the betterment of the movement.”
As CUToday.info reported, the payouts from capital not just to the manager/CEO of the merging credit union but also often to members of senior management, are taking place when members often receive little more than the opportunity to be part of a larger CU and “improved products and services.”
As the CUToday.info analysis also revealed, when some credit unions merge their respective net worth levels seem to play little role in deciding whether to pay out some capital to members as a result of the combination. The report was assembled from a CUToday.info review of more than four months’ worth of disclosure forms filed with NCUA by credit unions that are merging. The review shows that even in some cases where capital was north of 40%, a CU did not make any distribution to members.
Glenn Christensen
‘Very Wise’ for Boards
“I'm glad there are payouts to the CEOs, and I think, in fact, it would be very wise for boards of directors of credit unions to institute change of control agreements,” said Christensen. “Because, ultimately, credit unions need to do what's in the best interest of their members, and one of the barriers to merger is the fact that CEOs and other executives are concerned about what's going to happen to their financial future if a merger occurs.”
Without a change of control agreement that guarantees money to be paid to the CEO, Christensen contends CEOs in their 60s may choose to keep the credit union running on its own as opposed to merging out, when really a merger is the best move for the organization and its members.
“Otherwise, they are going to be hesitant to consider a merger, knowing that their future earnings capability is going to markedly erode,” according to Christensen, whose firm provides merger-related consulting. “Imagine you're 62-year-old CEO and someone approaches you and says, ‘Would like to merge in your credit union?’ Now this leader has nowhere to go to find a good position. Maybe they become a branch manager somewhere for a few years. The likelihood of this CEO at that age finding a comparable position at another credit union is pretty small. Therefore, without a change of control agreement, many CEOs aren't going to be acting in the best interest of the members. They need to have their finances protected in a merger.”
Not Just About the CEO
Christensen repeated his belief the payouts are one of the best ways to ensure members expanded offerings, while further ensuring staff have better futures as well, he added.
“I don’t know how many times I have been working with a credit union on a merger and find the staff have not received raises in the last five years,” Christensen stated. “The credit union was not doing well, and they could not afford to give raises. And, just as I have seen this so many times, I have also seen that staff receive pay raises when the team is merged into the profitable, larger credit union.”
One recent example reported by CUToday.info was the $7-million Tallahassee Community FCU in Florida, which also had fewer than 600 members) and which is seeking to merge into the $123.4-million Buckeye Community FCU in Perry, Fla. It said all of its employees will join Buckeye Community FCU at a higher rate of pay or the midpoint of the salary range for their position with BCFCU.
Christensen asserted the payouts to CEOs are not large when compared to other industries, including banks, school systems and the U.S. government.
“When you compare what many of the smaller credit union CEOs are getting with what government employees are getting as part of their defined benefit plan, it is generally not more,” said Christensen. “The difference is credit union CEOs are getting it in one lump sum in a merger. Look at what banks pay out. Look at what teachers get in retirement. These credit union payouts are not astronomical.”
A Tough Question
Christensen added that many CU boards he has worked with have not been able to put in place supplemental executive retirement programs and have had “skimpy” 401(k) plans, simply because the organization did not much in the way of earnings.
“This is a tough question for many CEOs,” concluded Christensen. “They're saying for the betterment of my members should I walk away from potentially five years of earnings, take that big financial hit for the membership? That's a tough question for them to answer.”