Board compensation has been a complex and extremely controversial issue for decades. While unheard of and illegal at one point, the idea is growing in popularity and legality across the country, sparking debate from many who argue that compensation is not only unethical but goes against the cooperative principles and the very foundation of credit unions.
At their core, credit unions are democratic institutions run by the very members the institution serves. Board members are meant to be volunteers with a desire to step into their ownership roles who have been voted in by their fellow credit union members.
However, board compensation is on the rise. And while it may not seem too crazy for a credit union to offer slight compensation for the time and effort boards put into the credit union, the problem arises when compensation is used as a means to undermine the democratic process of credit unions or merely line the pockets of particular members by offering pay that is not in line with the work done.
You may argue that the majority of credit unions do not pay their board members, and you would be right. But there certainly are a number of those who do and that number is consistently increasing. As of now, 18 states allow for direct compensation and many others are discussing the issue. But what exactly is the going rate for a board member and what motivation might a credit union have to offer such a perk?
High compensation, little effort
In 2013, the CU Times released research of their findings on board compensation, which found that while compensation is still in the minority, many credit unions do fund their boards–and some fund them very well. To earn such pay, it might be assumed that these board members are going above and beyond the call of duty to serve their credit union, but the numbers prove that many are only putting in a few hours a week.
One credit union in Maryland, for example, paid a board chair $25,300 annually for their work. To be clear, that work was a total of one hour per week or 52 hours annually, barely more than the average American worker works in one week. This means that the board member’s salary was around $20,000 a week for an hourly compensation of $486. Additionally, a credit union in Indiana paid a board member a whopping $93,100 annually for merely two hours a week of board work which equates to an hourly rate of $895.
Numbers like these make compensation simply unjustifiable. What is a board member bringing to a credit union that merits a pay of $400-900 per hour? Especially one who only dedicates an hour or two a week to the credit union. Could that money not be better used to serve the credit union’s membership and community?
As Richard Odenthal, President and CEO of Central Minnesota Credit Union asked, “What value are you getting from a board member for say $12,000? Paying board members $100 a meeting is not outlandish, but paying a board member $12,000 a year? Then someone may ask what you are doing for that amount of compensation.”
So if it is not a matter of effort, what is the motivation behind paying such large amounts? Some may argue that compensation is a means to increase member interest in the democratic aspect of the credit union. Credit unions have long since struggled with a lack of members taking part in their ownership role at their credit unions; i.e. attending annual meetings, voting, running for board positions, etc., and offering pay for these roles might sweeten the pot enough to increase participation.
However, if a board is only at the table for the pile of money that comes with it, does this kind of incentive really draw in the right kind of board members?
Buying board members
For large credit unions, the motivation behind compensation is not to increase member participation, but rather to “attract and retain well-qualified board members,” said Melanie Walsh, SVP of Human Resources at the $30.2 billion BECU in Washington.
Essentially, large-asset credit unions offer payment as a means to seek out and hire board members as full-time employees, with the salary and benefits that go along with such a role.
TruMark Financial Credit Union, for instance, has an asset size of $2.7 billion dollars. Per the CU Times report, they paid their board a whopping total of $454,560, with one member taking in $65,863 that year.
“They must be spending an awful lot of time on credit union activities,” said Gary Klotz of Community Choice Credit Union. “But you have to ask, what are they doing? Are they functioning as a board or are they functioning as super managers?”
While the demand and expectations on services for credit unions of that size may merit the need for full-time board positions, the method certainly undermines the democratic process of credit unions. These positions are meant to be filled by interested members who are a genuine part of the credit union. Instead, these candidates are being hired, paid, and retroactively made a member of the credit union for the sole purpose of meeting the qualifications of serving on a credit union board.
If a credit union is reaching billions in assets, it is nearly impossible to believe they lack qualified candidates within its own membership base. Instead of drawing these members out, compensation is being used as a tool to draw external candidates in.
In essence, credit unions that compensate their boards to such extreme amounts may, in theory, be meeting the requirements laid out in the cooperative principles, but are not following them in spirit. In this way, they operate more similarly to banks than credit unions. Many of the opponents against compensation argue similarly, noting that these methods remove a critical aspect of credit unions.
Carla Cicero, President and CEO of Numerica Credit Union, located in Spokane with an asset size of $3.6 billion, echoed this sentiment and noted that her board chose not to provide compensation as the board was “philosophically against it at this point. They maintain that volunteer governance is still a strong pillar of the credit union movement.”
A minority for now
Though the number of credit unions offering compensation is still in the minority, and the number of those offering such extreme amounts is fewer still, these practices should be raising questions and concerns from the industry as a whole. Particularly when the spirit of the cooperative principles is being circumvented or outright ignored.
That’s not to say that board compensation is truly signaling the fall of the democratic process within credit unions. However, it may be an indicator of shifting priorities and methods for credit unions, especially as credit unions struggle to find enthusiastic volunteers from their membership base to take on these roles and as larger credit unions feel a need for more “qualified” individuals than those within their membership.
As Odenthal mentioned, there are reasonable amounts and limits for board compensation. The key is knowing when compensation crosses that line and deciding what expectations should be placed on board members receiving that pay.
good reporting with excellent examples. Should be a board choice but with two caveats.
1. TRANSPARENCY: All board compensation should be fully disclosed by member in the Notice of the Annual Meeting including the basis for compensation, plus other reimbursed expenses.
2. OPEN ELECTIONS: All board openings should be fully communicated with nomination process so the members have a chance to run for the OPEN seats. Now many nominations are controlled by the board and are not open to the members, even when there is demonstrated interest.