CEO Pay May Surprise You

Executive compensation at state-chartered credit unions in the San Fernando Valley is keeping pace with industry trends, and experts say the region’s state-chartered credit unions are faring well compared with their counterparts nationwide. Public records show the top corporate officers at the two largest state-chartered credit unions in the San Fernando Valley each earned slightly more than half a million dollars in 2010, the most recent year for which data is available. CEO John Merlo of Premier America in Chatsworth earned $500,506 in total compensation (salary and bonuses), and Ronald McDaniel, president of California Credit Union in Glendale, earned $500,139. Merlo had other compensation of $52,601 and McDaniel had $27,633. Nonprofit state-chartered credit unions are required to report executive compensation data on their federal tax returns. Federally chartered credit unions, which are regulated by the National Credit Union Administration, have different reporting requirements so this information is not available. San Fernando Valley executive compensation figures for 2010 closely parallel the most recent national figures, which are for 2011. According to a study released in July, last year’s average total compensation for credit union CEOs at institutions with at least $1 billion in assets (where Premier America and California Credit Union rank) was $523,694. In the same asset category, Dale Verderano, president and CEO of Matadors Community Credit Union in Chatsworth, received total compensation of $239,288 and no other compensation. For chief executives at credit unions with fewer than $30 million in assets in 2011, the study reported an average total compensation of $86,582 nationally. Monica Lopez, CEO of Media City Community Credit Union in Burbank, earned 94,667 and received other compensation of $11,891. Media City reported $35,287,605 in assets in 2012. On a national level, salary and bonuses for credit union CEOs increased for the second consecutive year, according to data released in July in the 2012 CUES Executive Compensation Survey, published by the Credit Union Executives Society and administered by enetrix, a division of Gallup Inc. National statistics showed that chief executive officers received an average 5.93 percent increase in base salary plus bonus/incentive pay during the past year. The highest average increase since 2008, the average is up from a 5.01 percent increase in 2011 and 2.54 percent (the lowest level for more than a decade) in 2010. Tough job Evaluating whether an executive’s compensation is justified can be complicated, particularly in the San Fernando Valley, where credit unions range widely in size and complexity. “There are compensation differences between plain vanilla and complex credit unions,” said Thomas Glatt, Jr., founder of Glatt Consulting, LLC, a credit union consulting firm headquartered in Wilmington, N.C. Smaller institutions typically provide simple banking services, such as checking and savings accounts, certificates of deposit and consumer loans, while larger ones offer the same services along with a multitude of others, including mortgages. The Valley is home to a mixture of both types of credit unions, with a range of institutional assets from about $35 million to more than $1 billion. The two largest state-chartered credit unions in the region, Premier America and California Credit Union, have more highly compensated chief executives, which Glatt said stands to reason. “They have a more complicated job. They have a larger work force and additional compliance to deal with,” he said. “Once a credit union reaches a billion dollars in assets, you tend to have more frequent visits from regulators. That requires putting together a packet that explains the strategy of the credit union and sitting down with regulators to address any regulatory concerns. It’s a big job and gets very time-consuming.” For institutions with $1 billion or more in assets, credit union CEO salaries averaged $486,117 in 2011, according to the Credit Union Times. Another recent survey, conducted by the Credit Union Executives Society, a trade association, found that CEO compensation at credit unions nationwide rose 6.4 percent a year on average from 2006 through 2011. By comparison, average annual wages in the U.S. rose 2 percent a year from 2006 to 2010, according to the Social Security Administration. Performance-based pay Experts have seen a trend in the past several years toward performance-based executive credit union compensation. “Boards are becoming more sophisticated in their understanding of executive compensation and more credit unions want to look at this area in a comprehensive fashion,” said Don Curristan, a principal with Executive Compensation Solutions, a Southern California-based compensation and benefits consulting firm. Before the 2008 economic downturn, he noted, credit unions tended to focus largely on retaining key people. While that remains important, he said, an increasing focus is being placed on the creation of a corporate compensation philosophy. An effective compensation philosophy, he said, can serve as a guidepost when the board and senior management set pay and benefits for the key executives in the organization. Should executive compensation be a tool to attract top talent, or should it be tied to the financial success of the credit union? The latter trend emerged a few years ago and has gained steam in the past six months since the March failure of Telesis Community Credit Union in Chatsworth. “There was a significant jump in credit union compensation from 2009 to 2010, and we definitely saw CEO compensation that probably wasn’t warranted, given the financial performance of the credit union,” said Keith Leggett, a senior economist and vice president of the American Bankers Association. “Telesis was a classic example.” Leggett said he found it “particularly troubling” that the board approved CEO Grace Mayo’s more than $2.1 million compensation package “when they clearly knew Telesis was cratering.” The larger compensation issue confronting credit unions, he said, involves a “dual dynamic.” One is the issue of “excessive compensation,” which he considers inappropriate because credit unions, as not-for-profit institutions, do not pay corporate income tax. “That preferential tax treatment is supposed to benefit a credit union’s members, not go to big salaries and other compensation for executives,” said Leggett. But at the same time, he said, to remain competitive with banks in hiring the most qualified executives, credit unions have to pay comparable wages and benefits. Credit unions don’t have stock or equity to compensate for large salaries. All told, the past four years have been an uphill battle for credit unions, and those in the Valley have been no exception. “California got hit pretty hard in the downturn,” Glatt said. “Executive compensation is down, and credit unions for the most part are doing more (work) with fewer people. They’re still serving the same number of members and handling the same products.”