How to Align CEO Compensation with Strategy—and Strengthen Credit Union Governance

Opening / Introductions

Doug English: [00:00:00] Peter Myers, welcome back to C.U. On The Show. Delighted to have you, uh, here again today to talk to us about consulting, governance, and great leadership ideas in the credit union movement.
Peter Myers: Thanks for having me, Doug. Looking forward to it. It’s been too long.
Doug English: It has.
Well, your popularity is the issue. I’m here all the time.
Peter Myers: Well, thanks for having me. I’m excited. You know, I think what we’re gonna talk about is an important topic in the industry, CEO oversight management of the CEO. What are some of the governance practices? I, I think it’s long overdue for some organizations to really dive into this content.

Who This Conversation Is For

Doug English: So you should be aware, Peter, that my listeners are generally. CEOs, uh, yeah. And other senior executives. So, uh, are you saying that this session is for the board?
Peter Myers: No, I’m saying this session is for the board and CEO. Um, I’ll tell you that the highest [00:01:00] performing CEOs love this methodology. Okay? And, and I’ll tell you a couple reasons why in, in a few minutes.
But, um, if you’re not looking to be in a stronger accountability conversation with your board, like put some really clear. Guardrails around re rewarding, um, performance evaluations, et cetera, that I wouldn’t be in this conversation. Uh, but when this conversation happens, it brings board and CEOs together closer than they ever, than they ever are throughout the whole year.
It’s through this process.

Getting Started: Share with the Right Leaders

Doug English: So before we even start, then is is the best practice If you’re a CEO and you’re listening to this conversation and it resonates for you, do you share this with your board chair? Is that
Peter Myers: Yeah, absolutely. Absolutely.
Doug English: Very good
Peter Myers: board chair governance committee and CEO. And then I think this is also a good conversation for those aspiring CEOs or those in the waiting wing because they can start to go, oh, this is what I.[00:02:00]
Can maybe expect and or request when I’m interviewing for this process, because a lot of, and you know, this is a whole other topic, but how do you get ready to be CEO? One of the things that we help or good candidates will then say to a board is, well, how are you gonna evaluate me before I say yes to the job?
Let’s make sure we’re clear about that methodology, because if we’re not clear about it, we’re just creating friction for ourselves later on, and that’s not what we want.
Doug English: Clarity. Right on.

Origin Stories: Why This Work Started

Peter Myers: So maybe what we could do is, um, I’ll tell you a little like maybe a story or two, like why we got into this kind of work. What do you think?
Doug English: I love a good story. Yeah. Especially if you, especially a good story where it all turns out well and credit unions win.
Peter Myers: Yeah. Alright, so I’m gonna, I’m gonna tell you kind of the short version of it.
So I’m working with this CEO, this is about 10 years ago. And um, so [00:03:00] he was a year or two into the job. How seemingly high performing, at least he felt so, and he was like, Hey, look, I’m not gonna be CEO forever. He was kind of more advanced in age. And he says, I want to get this board to a level so that they can move, um, and oversee this organization when I’m gone.
Right. When I transition out. And I’m like, that’s great. So he was also like, and also I don’t feel like I am fairly compensated. I’m like, all right, well let’s take, let’s take a look. So we go through this kind of body of work. And what we find out is his contract was set up in such a way that if the organization made X dollars in net income, he got an a bonus, an incentive.
And, and that’s kind of makes sense. Um, but what if you looked historically the organization made just that amount of net income. Mm-hmm. Every single year for the last couple of years. Uh oh. And what [00:04:00] started to happen is that the board was like, well, we’re meeting this, this dollar figure, so that must be good.
But the assets were growing dramatically. So what was happening is net income seemed the same, but overall net worth and retained earnings was dramatically dropping. What he was doing was organizing around them the wrong metric at the expense of the organization’s overall financial footing, but no one was paying attention to it.
So the other thing that started to kind of creep up then is like, all right, well let’s do a CEO evaluation, and he goes. Now they wanna hold me accountable, and I’m like, Hey, hold on a second. You wanted to have this board implement some best practices so that they could, you know, make sure that the next CEO, et cetera, et cetera.
Yeah. Holding you accountable as a part of the process’s. Like, well, what does this mean? So anyways. It was an interesting [00:05:00] conversation that, so again, that was 10 years ago. They’ve, that individual has since retired, which was great. They’ve got a new CEO on there. They’re doing great. All, all these things now.
But that, that was one instance that really kind of caught my attention. Yeah. Let me, let me throw another one out there. Um. I’ll throw maybe two others. So one time, this organization, um, this CEO, as I found out, was getting paid, let’s say, you know, 75th to the 90th percentile, right? Mm-hmm. Which sounds great, right?
Would you like to get paid 75th percentile and 90th percentile? Doug?
Doug English: I just looked at the salary surveys and depending on the size of the credit union, yes,
Peter Myers: yes, that I would, I would like that as well. But here’s what happened is that this organization was below median in performance in a number of, uh, KPIs.
Now, the board didn’t know that. The board [00:06:00] thought that they were high performing. Why did they think that they were high performing?
Doug English: Because the CEO is telling them, Brad,
Peter Myers: the CEO said, we’re high performing. And so the board in this case didn’t know how to do the research, understand the metrics, work through this conversation to be more in a, Hey, CEO, if you wanna get paid in this kind of way, here’s the way to.
Go about it, right? Like let’s put some good kind of parameters in here. The other side of the coin is I’ve had some organizations CEOs being in paid the 25th percentile. And they’re in the 75th. 75th, you know, in a variety of factors too. And that doesn’t seem also fair as well. So there’s a number of these kinds of instances where we’re like, how do, why did they get that way?
Like what were their governance practices? What was written down? If anything to, to allow those circumstances to come about. And so that’s why we started into this process, this methodology. [00:07:00]

Common Pitfalls: No Real Evaluation, Social Check-Ins

Doug English: So I, I’ve heard some, uh, confidential complaints, we’ll call them, where A CEO would say to me, uh, yeah, they, they pay me at the median and they expect, you know, the top quartile.
Uh, and, uh, and, and you know, I, I think there’s. There’s some, uh, gray in the numbers. ’cause if you’re only using your total comp and not including your executive benefits, right? Uh, the, the, the present value of your total, total package, I find in my calculations, you put those two things together. It’s 200% of your, of your comp package if, if you have a large executive benefits, uh, plan.
So it’s, it’s, it’s maybe a bigger number than you think, but uh, this, this methodology that you’re talking about, uh, you know, unpack that for us.
Peter Myers: Well, yeah, so it’s, it’s what I think you’re speaking to is total rewards versus if we myopically focus on like a base. Compensation number. [00:08:00] Mm-hmm. And so there’s another organization, so we did a CEO search, um, and it concluded in, in January of this year where, you know, historically the base was kind of maybe below median, but the, the overall extra benefits and, um, uh, you know, they had a 10%, 401k, which is super generous, plus all these other things.
Did put it in a more competitive fashion. So I think you’re right, is to make sure you’re looking at the whole, the whole picture of things. Mm-hmm. So, so the total kind of methodology, maybe, maybe when we talk about, is like a couple common practices. ’cause I bet some organizations, some CEOs that are listening to this is like, all right, Peter, those, those horror stories, he said we’re, we’re not that scenario.
That’s not us. Common practices though, are, I would say there’s no evaluation at all. Too often organizations don’t have any kind of mechanism from a leadership evaluation standpoint or a process to objectively [00:09:00] determine an incentive and or bonus payout that happens so often. I was at a conference, I don’t know, it was a couple years ago, um, and uh, I was walking by, I saw some, some clients and I go, Hey, how’s it going?
And they’re like, ah. You know, they had beers, you know, and they’re like, oh, we just finished my performance evaluation. Ha ha, everything’s good. You know. And it, it was not, it was just a social conversation. It wasn’t really a formalized kind of feedback that CEO, um, which we knew not really done a lot of work with.
Um, let’s just say he got retired early.

Contracts, Formality & Governance Risk

Doug English: So is there some, is there some correlation data there? Like I, I, I know, uh, that, uh, recent data I saw said that I think it’s 55% of, uh, senior executives are operating with a contract. Uh, meaning basically half are not, and I know in my experience.
It’s common and, and in [00:10:00] large credit unions, it’s common to not, uh, see a contract.
Um, does that correlate with lack of formality in, in the rest of executive governance?
Peter Myers: That’s a fair question. I don’t know if I’ve done that kind of, um, one-to-one kind of analysis about it, because when there is not a contract, usually the reason is. Well, we haven’t had one before and it’s worked so far, so far for us now.
Right. And we don’t want to be mm-hmm. Um, locked into something, et cetera, which is a super fair argument. N almost every, I can’t think of one in this moment. Every CE o’s placement that we do, they end up having an employment agreement, even if there wasn’t one with the prior CEO. Because what we’re trying to do is.
We’re trying to protect the organization and frankly, we’re trying to protect the CEO boards will go, well, what if we want to get rid of him or her because of whatever? And it’s like, great, let’s just spell that out. It’s, I mean, that’s what [00:11:00] lawyers love to do is, is, uh, enumerate to the nth degree. All kinds of things.
Let’s just spell it out. CEOs, you want to get protected if the board. Uh, chair changes or a change of direction. Or a change of control. Great. Let’s just spell that out. Yep. It does help people not focus. It helps the CEO, I’ll say not focus on will. How long am I gonna be here for That? Is that, is it, it, uh, occupies too much of certain CEO’s attention me.
Doug English: Meaning like they’re waiting for the, the, for their next move up?
Peter Myers: No. Well, maybe yes and. And additionally, hey, I, they could let go of me at any point in time. Right? Right. Especially if I don’t have a deferred comp plan. Right. So there’s not like a carrot on there for me to stay. So I’m a free agent. That’s the quote that a lot of CEOs will say, I’m a free agent, and they could change their mind at any time.
And so, um, I had one [00:12:00] CEO tell me, um, after every board meeting, you know, he text his wife, Hey, I still got a job. No, he wasn’t. He wasn’t like on the bubble or anything like that. High performer, good CEO, great leader, all those kinds of things. But it was just a joke of like there’s no protection one way or the other.
I think that’s an institutional risk too, for succession planning, right? Because I have CEOs now, as you can imagine, that they tell me, I’m a free agent, or I don’t have a serp, or I don’t have these things. Peter, if you’ve got, or frankly, let’s say they do. Peter, I, if you’ve got a challenge that’s worthy that you think I would like, I’m willing to entertain it.
It’s like, okay. And there’s no employment agreement.
Doug English: Interesting. They, so you’re saying the employment, uh, you know, it reminds me, I did a, uh, I did one of these, uh, interviews with a recruiter and one of my, the, the biggest, uh, quote I recall from [00:13:00] that podcast was. If they have, uh, executive benefits, if they had split dollar specifically.
I can’t move them, is what the, uh, what the recruiter said.
Uh, and uh, and I assume that the, the, just the economic cost, especially if people get older and you, you gotta be able to ensure them, uh, becomes more and more difficult.
Uh, but you’re saying that there’s a, there there’s another side, uh, maybe a substantial side in having that employment contract, the clarity that both the board and the executive have sort of protects.
Both sides, uh, against short term moves, right? Those are only maybe three years long, five years long.
Peter Myers: Y yeah, each one’s a little unique and, and that’s a whole podcast and session in and of itself because what the employment agreement terms and conditions kind of allow for is. Well, what are we after here?
Short, long-term, medium, et cetera. And we can structure it a lot of different ways. So let me comment on what you said. The other [00:14:00] executive, um, recruiter did what, what I’ll say is we’re more executive search consultants, is the way that we look at it. And we are not necessarily, um, we have recruited CEOs with very generous, uh, split dollar plans into other organizations.
Um, it just, you just have to know how to do it. You gotta have to write it.
Doug English: Well, how, I know that’s not what we’re talking about today, but I gotta know, how do you do it? How do you,
Peter Myers: I’m gonna get, I’m gonna tell you that you need to talk with Tom Sivr over at uh, uh, alum, first at Exec Benz. That guy knows what he’s doing, man.
That guy knows what he is doing.
Doug English: Okay. All right.
Peter Myers: Yeah, that’s a whole podcast in and of itself, I think, and I’m not gonna get over my skis because that’s not my ao, that’s my area. Area of operation or expertise. That’s what they do.
Doug English: Right.
Peter Myers: So here’s a stat that you might like. I know you like stats. So I did some research, it’s maybe about two years ago now, about the amount of transitions for CEOs [00:15:00] and who took that spot.
And it was about 90% of CEOs that came into the CEO O position were not a sitting CEO prior to that role. So, let me say it differently.
Doug English: Yeah, I get it.
Peter Myers: When a c, when a CEO takes a job, when a job get, when a CEO job gets filled, it’s not by a C The overwhelming majority of the time is that it’s not a prior CEO.
Doug English: Interesting. So when you’re moving, you’re not moving from the top job, you’re moving from another job up to the top job.
Peter Myers: And usually I would say it’s because they’re established or those things, they’ve got the good thing going. They also have the deferred comp plans in place too. It so those, they are they, I would say they do work.
It’s not impossible though.

Board Friction → Channeling Sentiment into Strategy

Doug English: Yeah. Yeah,
Peter Myers: so we talk about, we were kind of started talking about this, about like, the, the, the CEO on the board and like works through this. I’ll tell you that a primary reason why [00:16:00] CEOs want to leave when it does occur is the board. The friction with the board. And I would say it’s because it is too common that there is not the proper mechanism or process to extract and channel and focus board sentiment into useful, pragmatic dialogue.
Hmm. Say it differently. There’s factions on the board. And then those things occur, and then the CEOs over here are trying to do their thing, and there’s not a mechanism to put it all to together and go, okay, let’s make this conflict useful. Let’s turn it into a generative force. So that that’s, that’s too, that’s too often the situation.
What also occurs is boards will go, well, what is the, um, Doug, how do you, how much do you think we should give Susie for her, her incentive plan? Hey Jeff, how much do you think we should give him? Hey Maria, what do you think? [00:17:00] And it’s too wishy-washy, squishy. Or my favorite is, Hey, you know, how do you feel We did on our financial goals.
So we’re take, we’re subjectively. Trying to quantify something that’s already quantified objectively. Mm-hmm. That’s my favorite.
Doug English: Mm-hmm. We don’t, we don’t have a metric, a system to measure against that. We then comp based on our system,
Peter Myers: or we do, we say the goal is we’ll do simple math. The goal is 1% ROA.
And I know that’s not, is one percent’s not what it used to be, but let’s just say 1% is the, is the goal. And let’s say we hit one per, let’s say we hit nine, nine basis points and then someone subjectively goes, well, we didn’t make it right. And it’s like, well, factually, I guess that’s true, but the sentiment is really like we hit 99% of it, right?
So, so let’s just figure out a different math way to come up with that kind of thing. So [00:18:00] another piece I’ll say that kind of is common. Is, um, there can be, uh, the, if they do have an evaluation, it doesn’t have, and this is a technical term, Doug, it doesn’t have teeth, it doesn’t have a compensatory impact.
Hmm. Right. Like, hey, positive leadership evaluation. But it doesn’t change the compensation number. Poor leadership evaluation. It doesn’t change compensation number. So you, you, if you’re a CEO and you go, okay, like I, I, I want to be working through this. I want to be making more money. How, how do we work the, there’s a number of components to talk through that.

Incentive Scorecard vs. Bonus: Align with Strategy

Doug English: Yeah, I know. I, I, again, in the recent salary survey, I know I read that, uh, bonus comp is somewhere around, uh. 30%, uh, of, uh, total comp for, uh, larger, uh, credit unions is, is what I’m reading. And the, uh, top factor is determining those bonus awards, number one you might [00:19:00] expect as earnings. Mm-hmm. And number two is the one you just talked about, the board evaluation.
So you gonna guide us through a methodology for how to build that.
Peter Myers: Yeah, so what I would put in there is we then, um, two off. Yes. So let me just kind of back up a little bit. Those salary surveys are great. What I think that they sometimes do is they query everyone. They’re not clear. So what you then get as an amalgamation of common practices.
Which is different than what’s best practice. Right. And, and I think the best practice starts with, well we need to think through the evaluative components and what are they, so there’s an evaluation, I think you mentioned it there, but then we need to go, well let’s have an incentive scorecard. You said the word bonus and I’m just, ’cause I live in the comp world, I’m gonna say no incentive bonus is something different.
Doug English: Ah, yes. Those state, those, those little bits of grammar matter.
Peter Myers: It’s, it’s, um, [00:20:00] there are different terms for different reasons, because CEOs will get bonuses. Like, Doug, great job. You crush it on that one thing. It was outside and above and beyond the duties. Et cetera, we’re gonna give you X dollars, right?
Which is, which is a bonus. And you go, whoa. Unexpected. Thank you very much. Incentive. An incentive scorecard or an incentive methodology is meant to objectively frame how the, uh, you’ll be held accountable to move and perform. And by held accountable, I don’t mean like wag finger at held accountable. I mean, no, you, if you hit those goals, I’m gonna hold you accountable, meaning I’m gonna reward you.
So accountability has like a conventional negative tone, and that’s not the way that I use it. It’s like, no, if hold me accountable to the performance that I’m actually doing, that’s, that’s a complicated [00:21:00] conversation because too often boards, and I know CEOs can identify with this. They’ll tell me, Hey, look, I’m not the expert.
Right on All these things kind of move forward. What I, what we like to do is service that it ary like that third party to say, let’s talk about strategy to almost every year when we bring on new clients into this process, we’re working with seasoned vet CEOs and as we’re talking through the strategy, we were looking at what there have been, um, incentivized by the KPIs before.
We’ll say, well, what about this one? It, you know, your organization is trying to move this kind of needle and you’re, maybe you’re doing well in it or something, but you’re not being rewarded by it, so why not? It’s like, oh my God. Never even thought about that one. That every single year that happens, and I’m not, I’m I’m saying large, sophisticated organizations.
So mostly a billion dollars and up is who we work with in this process, and we’re just advancing their methodology every year.

Soundbite: Strategy and Incentives Must Match

Doug English: So I, I, I wanna turn that into a [00:22:00] clear soundbite, a really clear takeaway. So what, what you’re saying is you’re. Looking at the comp structure of the senior executive, and you’re seeing if they’re being, uh, comped on the key metrics, the key strategic metrics that a board has set out, and you’re consistently finding they’re not being comped on all of them.
There’s big, there’s holes in the structure.
Peter Myers: The most relevant KPIs are not always attended to and addressed, measured, and or rewarded.
Doug English: The most relevant KPIs can. Can you, can you tell me a little bit that Yeah.
Peter Myers: Strateg, strategically relevant KPIs? I’ll give, I’ll give you an example. So over the last couple of years, and I know a lot of CEOs can identify with this, we’ve had some negative earnings in places that we didn’t necessarily thought think that we were going to ’cause our investment portfolio and interest rates drastically dropping all this.
We had all these kind of. Um, all these earnings sitting there that weren’t realized, et cetera. But so what a lot of [00:23:00] organizations did is they said, Hey, the right thing for the organization is we sell off these long duration investments. Take the loss, take it across the chin and the gut, take a hard punch in the face, but over the next three years, whatever, it’s gonna be net positive, that’s the right thing for the organization.
So what happens is, but I have to hit my ROA goal. Well, if I’m not gonna hit my ROA goal, now we’re in conflict. The strategy, what is required of the strategy is now competing with the individual performance metrics. So we’ve got to, as we say, here’s maybe the soundbite is the incentive scorecard methodology has to exactly align and compliment with the strategy.
They can’t be separate, and too often they’re separate. And that’s there’s, for a variety of reasons.

Implementation & Governance: Practice Over Theory

Doug English: So the, the incentive scorecard [00:24:00] methodology. So we’re are, we’re gonna try to, uh, sort of optimize that. Are we gonna kinda lay, lay out a, a, a framework for, uh, how a listener can implement that? Is that
Peter Myers: Yeah.
Yes. Well, so DDJ Meyers 805 7 4 8. No, it’s,
Doug English: that’s an okay answer, Peter.
Peter Myers: Yeah, no, that’s a fair because it’s, it’s, um, it’s a methodology which me, it’s one of the cool things, and this is for the CEOs, is if you want the c lemme back up. What I really enjoy is when a board intimately understands this current strategic positioning in an organization and where it needs to go and can translate that into financial and operational performance.
Doug English: That sounds like a board working perfectly, like leadership as it’s supposed to be. Right?
Peter Myers: The governance is enabling and, and, and I’ll, and I, and I, this is kind of a phrase I’ll use is best practice as a govern, as a board will defend the strategy. [00:25:00] Now, if you’re gonna defend something, Doug. It usually means you have a more intimate understanding of it.
Mm-hmm. Mm-hmm. So this is another channel for boards to become more intimately familiar with our current strategic position. Where are we? Where do we need to go? And then also. We give them, and this is, this is a cool kind of feature, is, um, a dashboard to look at competitive metrics. Well, our peer group is, you know, 500 million and above and we’re one and a half billion.
It’s like, well there’s a cajillion organizations that are in 500 million and above and you’re in so and so wherever, organization. Those aren’t your peer group. Let’s, let’s tighten it up a little bit more. Let’s look more rel. Let’s look at peers and competitors, ’cause those are different populations as well.
Have the board better understand where we perform well, where we don’t, and where we need to go. And then all that related to peers and competitors as well. It just increases the conversation, right? Everyone [00:26:00] just gets out like, yes, this is what we need. CEOs will then usually get, I’ll say, more reasonable, more relevant.
KPI Structures that are incentivizing the right behavior, incentivizing and rewarding, holding accountable the right behavior.
Doug English: I like it. I like it. That’s the alignment we want to drive the success of the organization, the bigger the organization, the more variable comp you, uh, tend to see.
Uh, and my suspicion is the more, uh, strategically aligned the board is, uh, and the CEO, uh, are the, the more you get the behavior pattern that you’re looking for.

Compensation Philosophy, Incentive Opportunity & Stretch

Peter Myers: You mentioned something earlier, Doug is like, uh, 30 percent’s pretty common incentive potential for CEOs, et cetera.
Doug English: That is a bonus, but that was wrong.
Peter Myers: Yeah. Right, right, right, right. So, um, but that, that is a fairly common number. However, I can throw another variable on there and then blow [00:27:00] that number up ’cause it’s, it’s totally different once you start slicing and dicing it differently.
The most important piece, and maybe this is something else to think about for our CEOs, is like. What is the board’s compensation philosophy for the CEO position and how aligned is that with the strategy? And you, you were saying an example earlier. Of like CEOs that say, Hey, they want, you know, top quartile performance, but they’re, they only want to pay bottom quartile.
Right. Well, that’s just good business too, right? From shortsighted. Right. I want the best for the cheapest. Right. But that’s not sustainable. That’s another way to look at it. We hear that all the time, right? When we’re doing some of our, uh, long-term str, CEO strategic succession planning with boards or we’re about to do a CEO searches, they’ll be like, yeah, we want.
Super innovative, bold. We wanna make waves, we wanna do all these things, and we wanna pay the cheapest we possibly can. We go, okay, this, that makes sense. Why you say that? Do you [00:28:00] understand that that doesn’t align though? That’s not gonna, so we kind of work through that. We have organizations where the incentive potential is a hundred percent.
Doug English: Wow.
Peter Myers: If I make, if I make 500,000 base salary, I can make a million total. If I hit every single number right, that’s on there now, however. That is for a high performer, high pot potential individual, that what, what is also important for boards to go is well philosophically, how often should that CEO be getting all of that incentive potential?
The a hundred percent of that? A hundred percent. Probably not all the time. Otherwise it’s just guaranteed. Let’s just load it in the salary. If you’re another way to say that as CEO, if you’re getting your full incentive potential all the time, this, the goals are probably not stretchy. The stretch goals are not stretchy.
Right. Let’s just load it in the salary and just put the incentive potential at zero. Right? It’s just making it [00:29:00] easier. You save on a lot of administrative governance kind of work. Now a lot of CEOs will be like, well, probably not right, but we got, we gotta go. What is that? Do you want a higher base? What do you.
The CEO’s perspective is really important to extract document put in there. ’cause I have, I here’s another example. I think it was about a year and a half ago, CEO was in the base salary of 75th percentile for their market. And total cash in the 75th. And, um, when it came down, no, I’m sorry, his base was in the median, sorry, in the total cash, 75th, what he ended up with is, hey, I’d rather have a base salary that’s higher and um, and incentive potential that maybe put.
Photo cash so I can just have something a little more predictable. ’cause there’s a lot of things changing in my life. There’s a lot of things in the organization we’re trying to change. I’m trying to move these things. We’re not gonna necessarily hit [00:30:00] grandstanding numbers over the next couple of years.
So, and the board is like, okay, yeah, I thought that makes sense. Like, you might make less money, but you want that. We’re fine to oblige with some of that.
Doug English: I can see personally why somebody would, uh, would want that. Just, uh, that your a hundred percent example just kind of blew my mind. I, I don’t believe I’ve ever seen any, anyone beyond 40%, uh, the, the a hundred percent, uh, incentive copy even as a potential, you know, maybe just, maybe I just haven’t been told that.
But I think you, you, you probably talked to a lot more CEOs than I do, but did, did the board get. What they asked for. Yeah. Did they get the, they got the results they were looking for and put a comm system up that, uh, rewarded, uh, what they wanted.
Peter Myers: Clear objective. We mapped it out.
Um, everyone was satisfied with it.
And what’s really cool is that, you know, there’s 4,500 credit unions, we can all run a little bit [00:31:00] differently. Right. There’s always gonna be an outlier. Someone’s gotta get paid in the 90th percentile. That’s the way math works. Right? Right. The other way to say that is someone’s also getting paid in the 10th percentile.
Someone is the lowest paid. Right. Someone’s the highest paid. There’s a lot of variations in there. What we like to do is give boards and CEOs like a structure and a forum to have that more robust conversation because frankly, it’s pretty common practice that a board does not have a rigorous conversation about performance in comp, um, in a structured, educated way.
They may have a rigorous conversation about sentiment. Which is different than data driven. Mm-hmm. Right. And that’s, that’s and a framework, right? Decision making process.
Doug English: Yeah. I, I, my, my sense is that a lot of, uh, especially long time board members and long time executives get pretty personally [00:32:00] close. And I can imagine that if you’re, you’re hearing this podcast and you’re one of those folks that hasn’t had a.
Um, a contract ever, or, or in decades, you’re thinking, yeah, I’m not gonna do that. ’cause the boat, it’s, it’s going just fine. The board, uh, the organization’s fine. The board, uh, is, is very happy. I’m reasonably happy with my compensation, but I imagine the. Something comes along and it’s a change in the composition of your board, uh, or the need to start to identify the, your bench, uh, and develop that talent pool.
And that’s is that what get causes them to call you and to start to formalize the processes that have been informal for decades.
Peter Myers: And, and you’re, you’re pretty close on all of that, Doug. And, and I’ll give you an example. It’s like, Hey, look, we’re doing well organizationally, Peter, everything you’re saying sounds awesome.
If I were 10 years younger, I [00:33:00] would do it, but I’m close to retirement. Why should quote unquote, right? Basically quote,
Doug English: I bet you hear that all the time.
Peter Myers: I, I hear it fairly often. And, and you know what I’m gonna say is like, I totally get it and I agree with you like in some degree, but however. The impetus to do this now prior to CEO transition is to increase the sophistication of the governance practices, or have the governance practices meet the potential of the organization where we need to go in the future before the new CEO comes on.
I like to get this done two years out before CEO transitions, so we’ve worked out the kinks. The, or they’ve worked.
Doug English: Oh, you know, I, I wrote a, uh, I wrote a, a piece on, uh, you know, common errors that, uh, uh, CEOs make in their retirement planning. And I was talking about things not to do, not to do in the years just before retirement.
Like core [00:34:00] conversions. Right. Uh, you know, just big messy things, large acquisitions.
Peter Myers: I had a guy, I’m sorry, I’m gonna interrupt you because I can’t miss it. Doug. This CEO. Two weeks before leaving the organization signed the core conversion contract.
Doug English: See you later. Yeah,
Peter Myers: he was, and I was like, I told the board beforehand, Hey, just here’s our process for onboarding.
You know, just these contracts over this, don’t long term, blah, blah, blah. And that one slipped through the cracks, right? Yeah. So anyway, sorry. I can can’t.
Doug English: That’s a big one. That’s big.
Peter Myers: I’m glad that you’re writing that, Doug. We on the same page as you. Nice job. You know. So, yeah. So sorry,
Doug English: but, but what, but maybe one to add to consider doing, and this is exclusive from this.
This podcast discussion is, is to formalize your, uh, your governance, to formalize the, uh, you know, get a, if there’s not a contract, consider putting together a contract.
Uh, making sure that the key, uh, performance [00:35:00] indicators for the organization are part of the structure, and have that be part of your.
Sort of, uh, you know, two years away from your transition to try to put those things in. So the organization thrives when you’re no longer there.
Peter Myers: So I’m gonna say you’re right on all those things and what we map out for boards, as we say this CEO succession process starts five years prior. And it really completes one year after. So too often C boards and CEOs will think about CEO succession for when the, for like the first week of A CEO coming on board.
But no, there’s process we need to do at six months. We need to do an evaluation at six months of pulse check. Where are we at? Right? And then a more formal evaluation after one year. And we talk about in the incentive scorecard for that first year. That’s a whole other conversation, which we don’t have time for.
But, um, ironing out, well, what’s an employment agreement look like? What’s a [00:36:00] compensation philosophy look like? What’s the market paying these days? Have we been underpaying our CEO this whole time? Oh my gosh, we gotta work through that. So that’s a good conversation.
Doug English: You know, I, I, I, I’ll be interested in your, in, uh, in your feedback on this idea.
Uh, I, I was talking to A-A-C-E-O the other day, and she had. Spent with the organization 30 years, uh, $200 million credit union.
Uh, and they had in their, uh, their comp package was, uh, you know, she had the salary and a bonus. I don’t remember what percentage it was, 401k, um, no, 4 57 B, and no other executive benefits.
And, and, you know, my question to to her was, uh. What is your ability to replace your income look like in retirement?
Uh, and, uh, and she hadn’t done that, that math of knowing, okay, if you work for this [00:37:00] credit union for 20 years or 30 years, can you leave here as a, an executive, as a rank and file employee and get a reasonable replacement ratio?
Uh, that it takes to live, which is, you know, somewhere between 60 and 80%. Do you ever see that in a, in a compensation, uh, discussion with a board? Like, uh, we, you know, a, a structure that is, that has, uh, got that endpoint in mind that we wanna.
Recruit you. We want to align you with our strategic outcomes, and then we wanna make sure that you win when you leave.
Is do you ever see it end to end like that?
Peter Myers: A a, absolutely. So one of the things that we will do, ’cause we, as I mentioned earlier, we call ourselves strategic search consultants. And so it’s really is a, a moniker, denoting of the cons, consultative process end to end, which is different than a transaction.
Right, so I’m not just giving you a resume. So an example [00:38:00] is, uh, when we do employment agreements and they’re gonna get a deferred comp plan inside of that, we will help boards navigate, whether it’s with, um, our partner company at aal, first exec, Ben, or other partner companies that do executive benefits.
We are the objective. I’m not getting paid from those things, right? I’m not, I’m not help. So we can keep it clean in that kind of way. But were the board’s broker consultant to understand what that content means, what are the education, what are the figures out there? Is 60% reasonable? Is 80% too rich? Well, we gotta layer in context for the individual.
Where are they? Because I’ll also, I’m gonna make the argument, Doug. I think the common practices may be outdated for some organizations. I’ll give you an example. Younger-ish, CEO started a year and a half ago. They put together a cert for 20 years from now. Might as well be a hundred years.
Doug English: Yeah. That’s too long.
Yep.
Peter Myers: [00:39:00] Right. Might as well be a hundred years. Because you know what someone else can do? They can recruit that individual buy.
Doug English: I know. Yeah. Right.
Peter Myers: So not even buy it out, just, just, I’m gonna put it in a different package for you and I’ll pay you in three years. So we’re here to help. But, but that 20 year serp, or let’s be more clear.
Split dollar is a big price tag. Right. And it’s got big commissions assigned to it. I’m more thinking about, Hey, the landscape’s changing pretty rapidly. I want that person to stay here focused, rewarded, 3, 5, 6 step. You know, I want them in that kind of timeframe, and then we can iterate on that. We can layer on over time.
That’s a different approach though. That’s a different strategy. Mm-hmm. So something to think about for the CEOs out there.
Doug English: There’s a lot to think about. Yeah. And thank goodness we have the great servant leaders. Ooh, hey, I’m gonna focus the great servant leaders we have in this, uh, credit union movement.
It is a difficult job. It is one with, [00:40:00] uh, never ending change in ai and.
Uh, disruption of the employment pools and work from home. And it’s, it’s not a small, uh, task that we ask of credit union leaders, and that’s maybe one of the reasons that the compensation is, is substantial. Because the job is substantial, the expectations are substantial.
And as an industry, we need to make sure that the comp packages, uh, create a win, uh, for those families. When you leave. The executive suite or the rank and file of a credit union, you need to leave in a way that provides you with a, a, a reasonable, uh, income for the rest of your life. And I, I think, you know, my, in my analysis, that is the case the vast, vast majority of the time.
It is rare for me to not see that. But when I do, it’s someone that has been in the position. For decades. They were a teller, and then I got in the executive suite and they stayed there for decades and they never kind of got marked to market on their comp. That’s the only folks that [00:41:00] I have ever seen that are way behind the eight ball.
Peter, how about, how about you?
Peter Myers: Yeah, I think that’s pretty, there’s a high correlation there, I would say, and there’s a causal, um, piece too that I say is like boards getting educated from outside experts too, right? Going to conferences, doing that thing. What’s your best practice? What’s your. We got a conference that we’re gonna speak at.
It is in January and it’s basically to help boards really share.
Doug English: Oh, that was in, that was in Hawaii. Peter, I keep waiting for the invitation.
Peter Myers: I haven’t gotten, I’m going, no, that one I’m talking about is in Jamaica. I’m going to Hawaii and then Jamaica Actually this in one trip away from home.
Doug English: That, that’s actually too much.
Peter Myers: But it, it’s, uh, it, I’m gonna be honest, it’s like the worst first world privileged problem to have to go from Hawaii to Jamaica. It’s really far. Yeah. Well, it’s far. I’m away from my family, all that kind of stuff. But, um, you know, but I am going to cool places. But anyways, so yes, I think there’s, you know.
Getting best practices out [00:42:00] there and what’s talent look like? What’s talent, what’s the market for talent?
Um, I like how you said it. I’m gonna add on there. People should be paid for the risk that is they’re placing themselves into, because taking a CEO job, huge amount of risk if you don’t do that job right.
Woo. That is hard. That is hard to come back from
Doug English: it. It is.
Peter Myers: Right. So you should take that. Someone’s gotta take that risk.
Doug English: Mm-hmm. But that you need to be compensated for it. And, and the takeaway from this, uh, discussion with Peter Myers from DDJ is. There’s a system, there’s a system that you need to have to put together to align the metrics of the organization, the strategic outcomes of the board, with the compensation of the CEO, uh, so that everybody wins together and everyone is chasing the same objectives and is paid on those objectives in a reasonable, measurable way.
Peter Myers: Love it. Nice job. You should do [00:43:00] this for a living.
Doug English: Thank goodness I do not. Peter Myers, thank you so much for coming back. Thank you for, uh, helping this, uh, great credit union movement, survive and thrive. I love to have you, uh, back again and again. I’ll look forward to next time. And until then, everyone in Credit Union Land, you can find Peter in Hawaii or Jamaica.
Thanks, Doug.