9/25/2013
Director Compensation
A Panel Discussion
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NASCUS State System Summit
Coeur d’ Alene, Idaho
September 20, 2013
Panelists
• Jeff Dahlstrom, President & CEO Southeast Financial Credit Union
• Fred Robinson, President Tennessee Credit Union League
• Troy Stang, President & CEO N th
Northwest Credit Union Association
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© 2012 NASCUS. All rights reserved.
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9/25/2013
Jeff Dahlstrom, President/CEO
Southeast Financial Credit Union
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[email protected]
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Questions
• Should credit unions be given a choice regarding board compensation?
• Will board compensation be a safety and soundness issue?
• Does board compensation increase the value of membership?
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Questions
• Will board compensation improve financial boa d co pe sa o
p o e a ca
performance?
• Will board compensation increase the overall performance of the credit union?
• Will board compensation increase member satisfaction, member loyalty, member retention?
Questions
• Do the requirements of being a board member require a greater understanding of more complex financial issues?
• Are regulatory requirements increasing or g
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decreasing?
• Do we expect more or less from our board members?
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Questions
• Are board members taking on more liability and increased risk?
Tax Questions
• Will banks oppose credit unions’ tax status if we compensate board members?
• Will banks oppose credit unions’ tax status if we do not compensate board members?
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Benefits/Advantages
• Recruiting
• Expertise
• Experience
• Expectations
• Preparation
• Engagement
• Accountability
• Responsibility
• Performance
• Ownership
• Retention
Why should board members be paid?
• It’s the right thing to do.
• They deserve it.
• They have earned it.
• We owe it to them.
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Who are “they”?
• It’s the right thing to do for our members.
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• Our members deserve it.
• Our members have earned it.
• We owe it to our members.
Credit Union Choice
Board compensation is a tool and resource that credit unions may consider using, in order to add value for the members.
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Fred Robinson, President
Fred
Robinson President
Tennessee Credit Union League
[email protected]
© 2009 NASCUS. All rights reserved.
Tennessee Board Compensation
• Legislation introduced by a member credit union in 2009.
• Member credit union lost a quality board member to an institution that compensates directors.
• League surveyed membership and vast majority opposed proposal to compensate board members.
• Tennessee League Board unanimously opposed board compensation.
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Bill Language HB‐0258/SB‐0587
• Under this bill, members of the board of directors, if any, may be compensated as a member of the board at the rate approved by a majority vote of the board of directors and subject to the approval of the commissioner of financial institutions as the commissioner deems appropriate
commissioner deems appropriate. League Board
• Tennessee Credit Union League Board working at the will of the membership instructed governmental affairs staff to oppose legislation (2009).
• The league communicated to the membership that the legislation would be opposed.
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Strategy and Success
• 2009 ‐ League Governmental Affairs team keeps legislation from getting to a sub‐committee vote.
• 2010 – 2012 – Through active engagement with lawmakers and credit union leaders legislation does not clear sub‐committee.
Legislation Passes ‐ 2013
• What Happened!
What Happened!
• What I like to call a “perfect storm” for passage.
– Dramatic change in Tennessee General Assembly makeup.
– Both Houses have super majorities – Change in Executive Branch
Change in Executive Branch
– Change in Committee Structure
– Loss of key supporters
– Legislation is permissive
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Legislation Passes ‐ 2013
• Committee Chairman contacted League staff and indicated that we did not have the votes to defeat the proposed legislation.
• League Board gives staff latitude to amend bill that will offer credit union members protection
that will offer credit union members protection.
League Amendment
• The board shall adopt a resolution stating that the credit union requires expertise among board members for the prudent general management of the affairs, funds and records of the credit union; • Such compensation shall be payable to board members elected after the adoption of the resolution above;
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League Amendment
• The credit union shall adopt a policy governing the participation and attendance that a board member shall comply with in order to receive compensation;
• The annual report of the credit union's income and expenses shall include board member compensation as a specific expense item.
Credit Union Impact/Reaction
• Credit unions are concerned this may impact tax‐
status.
• Credit unions are concerned that this could add an unnecessary expense.
• Change the motivation of directors
Change the motivation of directors
• Most credit unions believe this will not improve board member pool.
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Board Resolution
• League was approached by several credit unions wanting the ability to re‐affirm their credit union’s board commitment to volunteerism.
• League staff developed a Board Resolution that will confirm their credit union’s position to remain volunteer led.
• Over 40 credit union boards have signed this commitment.
Board Resolution
• Each board member receives a lapel pin that confirms their commitment to a volunteer board structure
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Compensation Today
• No credit union in Tennessee currently compensates their directors.
• It is now the law.
• The League has no position on the decision each credit union makes concerning compensating their
credit union makes concerning compensating their boards.
Troy Stang, President & CEO Northwest Credit Union Association
[email protected]
Additional resources online at www.nwcua.org
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The Credit Union Value Proposition
• Choice in financial services providers and charters
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• Cooperative services are similar; outcomes are different than for‐profit model (“who” we are)
• The “CU Difference” boils down to structure
• Not‐for‐profit, cooperative structure drives the value proposition
– Democratically (member) driven; one member‐one vote
– No profit‐motives, no stockholders
– Real, tangible value; returns to members in the form of lower fees and better interest rates
© 2009 NASCUS. All rights reserved.
Tenants (the “What”) of Enhancing Our Charter
• Advocate
Advocate enhanced latitude for well
enhanced latitude for well‐managed
managed credit credit
unions • Protect against new requirements limiting credit unions’ operations and diverting resources from serving their members
• Regulator effectiveness including oversight and the examination/appeals process
• Budget accountability within regulator’s operations
• Seek increased oversight for unregulated entities in the financial marketplace, such as predatory lenders © 2009 NASCUS. All rights reserved.
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“Why” We Continuously Evolve the CU Charter
• Remove
Remove barriers, enhance competitiveness for the benefit of barriers, enhance competitiveness for the benefit of
members (real tangible value creation)
• Credit union charter enhancements allow credit unions to serve evolving needs of members/communities • Burdensome regulations have a direct impact to credit unions’ contraction and failure
• The importance to advocate for regulations that allow credit unions to modernize, innovate, and thrive
• Promote self determination (choice) for the individual cooperative
© 2009 NASCUS. All rights reserved.
The on‐going Evolutionary Process (the “How”)
• Evolution task force
• Symposiums
• Model CU Act Committees
• Government Affairs Committee
Government Affairs Committee
• Association Board
© 2009 NASCUS. All rights reserved.
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Director Compensation…
• In post‐Dodd/Frank environment, an increasing number of credit unions are challenged with recruiting board members with the types of skills and experience they need on their board
• Provides an optional (self‐determination) tool
• Most importantly: board compensation does not change the fact that credit unions are cooperatives
© 2009 NASCUS. All rights reserved.
Director Compensation…
• The regulatory burden is increasing
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• The products and services are more sophisticated
• The expectations of directors are increasing
• Providing needed tools to recruit or maintain the type of board they need to succeed
• The idea of cooperative board compensation is not new—both within the credit union movement and among other cooperatives
© 2009 NASCUS. All rights reserved.
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Highlights: 2013 Enhancements to the Washington State Charter • Less Frequent Board Meetings
– Six meetings required per year compared to 12 for federal charters, leaving more time to focus on day‐to‐
day operations benefitting membership
• Option for Board Compensation
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– Gives state chartered credit union an added tool to attract highly qualified Directors
© 2009 NASCUS. All rights reserved.
Positioning WA Credit Unions for the
Future…
• SB 5302—Washington
5302 Washington Credit Union Act
• DFI in process of defining “reasonable” Director
compensation
• Rule-making process expected by yearend on board
meeting frequency (reduced to six per year) and
reall property
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• NWCUA is coordinating one-on-one CU Advocates
meetings with legislators following special budget
session to message credit union priorities
© 2009 NASCUS. All rights reserved.
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Things That Matter….
• The cooperative structure
• Delivery of real tangible value
• Impact to the community
• Unityy within the industryy
• Our voice
• Ultimately, market share…
© 2009 NASCUS. All rights reserved.
Why It Matters…
• Credit unions are absolutely necessary…
• To Main Street American consumers and
businesses
• As a part of the economic engine
• As the fabric of the communities
• Through the lens of public, the media, and public
policy
© 2009 NASCUS. All rights reserved.
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Questions NOT to be Defined by
Others:
• Whether the existence of credit unions
adversely affects banks and their shareholders
• Products/services
• Markets/field of membership
• Capital
C it l
• Regulatory parameters
• Governance matters
© 2009 NASCUS. All rights reserved.
Credit Unions Demonstrating:
….employment of the tax status (convert the
cooperative tax structure) to fulfill the purpose
for which it was created:
To make more available through a national
“To
system of cooperative credit, thereby helping to
stabilize the credit structure of the United
States.”
© 2009 NASCUS. All rights reserved.
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Questions?
© 2009 NASCUS. All rights reserved.
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