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2010 NAFCU-BFB Survey of Federal Credit Union

Executive Benefits and Compensation

Presented byPresented by

Jack E. Clark, PhDJack E. Clark, PhDClark & Chase Research, Inc.Clark & Chase Research, Inc.

October 6, 2010 October 6, 2010

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NAFCU

NAFCU Services

Burns-Fazzi Brock

Sponsored by:Sponsored by:

3• How We Did It• Things to consider when looking at

survey results• Select Findings

– Top Executive• Base Salary• Bonus• Total Compensation• Fringe Benefits

– Reviewing Executive Compensation Plans– Nonqualified Benefit Plans for Executives– Benefits for Board Members

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How We Did It How We Did It

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• In 2010, all Federal Credit Unions were invited

• Survey Completed 4/21 to 5/17• 325 Credit Unions participated • Information about 923 Executives

• 325 Top Executives• 227 #2 Executives• 159 #3 Executives• 123 #4 Executives• 89 #5 Executives

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In addition,In addition,Data is Data is weightedweighted byby

–– Total Assets Total Assets –– RegionRegion–– Number of EmployeesNumber of Employees–– NAFCU MembershipNAFCU Membership

Result: Sample representing Result: Sample representing Federal Credit UnionsFederal Credit Unions

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Looking atLooking at

Survey Results Survey Results

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DefinitionsDefinitions What is a Percentile?What is a Percentile?

LowestLowest HighestHighestValueValue ValueValue25th25th

PercentilePercentile

50th50thPercentilePercentile(Median)(Median)

75th75thPercentilePercentile

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# of Employees# of Employees # of Members# of Members

Total Loans/LeasesTotal Loans/Leases Years as Exec Years as Exec

EducationEducation

Total AssetsTotal Assets

10Top ExecutiveTop Executive

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

0 6 11 16 19 30 40 49 74 109 139 209 350 642 1,809

Total Assets in Millions

Tot

al C

ompe

nsat

ion

Total Compensation (Base+ Bonus)Total Compensation (Base+ Bonus)

Asset sizeAsset size and and total compensationtotal compensation are are highly correlated. Therefore, as asset highly correlated. Therefore, as asset size increases, total compensation size increases, total compensation also tends to increase. also tends to increase.

11Relationship Between Total Relationship Between Total

Compensation and Other VariablesCompensation and Other VariablesCorrelation to Correlation to Top ExecutiveTop Executive’’ss

Total Total Compensation*Compensation*

Total Assets Total Assets .84.84 # of Employees# of Employees .79.79

# of Members# of Members .78.78Total LoansTotal Loans .78.78

EducationEducation .33.33 Years as an ExecYears as an Exec .17.17

* Correlations based on analysis of 2010 NAFCU/BFB Survey * Correlations based on analysis of 2010 NAFCU/BFB Survey of Federal Credit Union Executive Benefits & Compensationof Federal Credit Union Executive Benefits & Compensation

Highly related to each other – all measure of credit union’s size

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Federal Credit Union Asset SizeFederal Credit Union Asset Size Population vs. SamplePopulation vs. Sample

Federal CUsFederal CUsTotal=Total= 100%100% 4,7174,717 SampleSample

<$10M<$10M 43%43% 2,0032,003 4040$10M $10M –– <20M<20M 15%15% 705705 5252$20M $20M –– <40M <40M 13%13% 627627 4242$40M $40M –– <75M <75M 10%10% 474474 4747

$75M $75M –– <150M <150M 8%8% 374374 4444$150M $150M –– <335M <335M 6%6% 271271 4040$335M $335M –– <750M <750M 3%3% 150150 3030

$750M+$750M+ 2%2% 113113 3030

Source: NCUA Data Query, April 21, 2010Source: NCUA Data Query, April 21, 2010

13When Looking at Survey DataWhen Looking at Survey Data

••Sample size not determined based Sample size not determined based on the size of the population.on the size of the population.

•• Whether we are looking at the 2,003 Whether we are looking at the 2,003 smallest CUs (<$10M Assets) or the 113 smallest CUs (<$10M Assets) or the 113 largest CUs. largest CUs.

••Very small samples are essentially Very small samples are essentially meaningless.meaningless.

••How is the sample selected and How is the sample selected and analyzed analyzed –– Is it Is it representativerepresentative? ?

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Expressed in Millions($)Expressed in Millions($)$10M $10M $20M$20M $40M$40M $75M $75M $150M $150M $335M $335M $750M $750M

Assets:Assets: <$10M<$10M <20M<20M <40M<40M <75M<75M <150M<150M <335M<335M <750M<750M PlusPlusPercentilePercentile

9090THTH 8 8 18 18 40 40 72 72 133 133 296296 687687 3,0923,0927575THTH 7 7 17 17 38 38 63 63 128128 246246 622622 2,4192,4196060THTH 5 5 16 16 31 31 55 55 121 121 215215 517517 1,8091,8095050THTH 4 4 14 14 29 29 48 48 113113 202202 493493 1,5541,5544040THTH 3 3 13 13 27 27 48 48 109109 187187 457457 1,222 1,222 2525THTH 2 2 12 12 23 23 44 44 8787 181181 396396 7957951010THTH 2 2 11 11 22 22 42 42 7979 164164 372372 769769

Asset PercentilesAsset PercentilesFederal CU Asset SizeFederal CU Asset Size

Source: NCUA Data Query, April 21, 2010Source: NCUA Data Query, April 21, 2010

Example: Credit Union with $117M in Total Assets

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SelectedSelected FindingsFindings

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2010 Base Salary2010 Base Salary for Top Executivefor Top Executive

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Salary Salary Expressed in Thousands($)Expressed in Thousands($)$10M $10M $20M$20M $40M$40M $75M $75M $150M $150M $335M $335M $750M $750M

CU Assets:CU Assets: <$10M<$10M <20M<20M <40M<40M <75M<75M <150M<150M <335M<335M <750M<750M PlusPlusPercentilePercentile

9090THTH 65 65 88 88 100 100 126 126 185 185 219219 262262 4994997575THTH 55 55 72 72 93 93 108 108 143143 200200 243243 4204206060THTH 41 41 68 68 88 88 102 102 138 138 176176 230230 4004005050THTH 39 39 58 58 82 82 100 100 135135 170170 211211 3613614040THTH 37 37 56 56 79 79 96 96 125125 155155 200200 350 350 2525THTH 29 29 52 52 76 76 90 90 119119 140140 177177 3393391010THTH 18 18 48 48 69 69 80 80 104104 111111 172172 291 291

Top ExecutiveTop Executive 2010 Base Salary2010 Base Salary

Example: Credit Union with $187M in Total Assets

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2010 2010 Potential BonusPotential Bonus

for Top Executivefor Top Executive

192010 Bonus Percent2010 Bonus PercentTop ExecutiveTop Executive

0

10

20

30

40

50

60

70

0 6 11 16 19 30 40 49 74 109 139 209 350 642 1,809

Total Assets in Millions

Bon

us P

erce

ntag

e

Although Although bonus percentages bonus percentages tend to tend to increase as total assets increase, unlike increase as total assets increase, unlike compensation, the relationship is not as compensation, the relationship is not as strong strong –– bonus percentages can vary quite a bonus percentages can vary quite a lot even among credit unions of similar size. lot even among credit unions of similar size.

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Expressed as Expressed as PercentPercent of Base Salaryof Base Salary$10M $10M $20M$20M $40M$40M $75M $75M $150M $150M $335M $335M $750M $750M

CU Assets:CU Assets: <$10M<$10M <20M<20M <40M<40M <75M<75M <150M<150M <335M<335M <750M<750M PlusPlusPercentilePercentile

9090THTH 8 8 7 7 10 10 21 21 25 25 2020 3838 50507575THTH 3 3 3 3 6 6 8 8 1818 1515 2020 40406060THTH 0 0 0 0 3 3 5 5 10 10 1010 1111 30305050THTH 0 0 0 0 2 2 3 3 1010 44 55 24244040THTH 0 0 0 0 1 1 0 0 88 00 22 16 16 2525THTH 0 0 0 0 0 0 0 0 33 00 00 551010THTH 0 0 0 0 0 0 0 0 00 00 00 0 0

Top ExecutiveTop Executive 2010 Bonus Percent2010 Bonus Percent

Example: Credit Union with $1.2B in Total Assets

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2010 2010 Potential Total Potential Total CompensationCompensation

(Base & Bonus)(Base & Bonus) for for

Top ExecutiveTop Executive

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Expressed in Thousands($)Expressed in Thousands($)$10M $10M $20M$20M $40M$40M $75M $75M $150M $150M $335M $335M $750M $750M

CU Assets:CU Assets: <$10M<$10M <20M<20M <40M<40M <75M<75M <150M<150M <335M<335M <750M<750M PlusPlusPercentilePercentile

9090THTH 65 65 91 91 108 108 142 142 223 223 241241 341341 6236237575THTH 59 59 76 76 97 97 120 120 176176 208208 270270 5925926060THTH 43 43 70 70 91 91 107 107 153 153 200200 245245 5255255050THTH 39 39 62 62 87 87 103 103 150150 187187 225225 4744744040THTH 38 38 56 56 81 81 101 101 137137 156156 205205 424 424 2525THTH 29 29 52 52 76 76 92 92 122122 143143 189189 3783781010THTH 18 18 48 48 69 69 87 87 110110 111111 177177 320 320

Top ExecutiveTop Executive2010 Potential 2010 Potential Total CompensationTotal Compensation

Base Salary & BonusBase Salary & Bonus

Example: Credit Union with $38M in Total Assets

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Reviewing Reviewing Executive Executive

CompensationCompensation PlansPlans

24Executive Executive

CompensationCompensation Review of Compensation PlanReview of Compensation Plan

7%

14%

Yes, currently reviewing

Yes, planning to review

““Is your credit union planning to review your Is your credit union planning to review your overall executive compensation plan?overall executive compensation plan?””

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““Is your credit union planning to review your Is your credit union planning to review your overall executive compensation plan?overall executive compensation plan?””

$10M $10M $20M$20M $40M$40M $75M $75M $150M $150M $335M $335M $750M $750M Assets:Assets: <$10M<$10M <20M<20M <40M<40M <75M<75M <150M<150M <335M<335M <750M<750M PlusPlus

Yes, currently reviewingYes, currently reviewing<.5% <.5% 14% 14% 9% 9% 9% 9% 24% 24% 4%4% 14%14% 24%24%

Yes, planning to reviewYes, planning to review7% 7% 8% 8% 25% 25% 29% 29% 14% 14% 16%16% 35%35% 11%11%

Executive Executive CompensationCompensation Review of Compensation PlanReview of Compensation Plan

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How many Federal credit How many Federal credit unions have executives with unions have executives with Nonqualified benefits plans?Nonqualified benefits plans?

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DefinitionsDefinitions Nonqualified Plan?Nonqualified Plan?

457(b) SERP 457(b) SERP ––•• Section of the IRS CodeSection of the IRS Code•• Government & taxGovernment & tax--exempt executives exempt executives •• Defer income up to a maximum amountDefer income up to a maximum amount•• Employee contributes in addition to qualified Employee contributes in addition to qualified

plans such as a 401(k)plans such as a 401(k)457(f) SERP457(f) SERP ––•• For select execs of taxFor select execs of tax--exempt organizationsexempt organizations•• No limits on contributionsNo limits on contributions•• Both corporation and employee can contribute Both corporation and employee can contribute

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DefinitionsDefinitions Nonqualified Plan?Nonqualified Plan?

SplitSplit--dollar Insurancedollar Insurance•• Way of paying for Life InsuranceWay of paying for Life Insurance•• Arranged between Employer and ExecutiveArranged between Employer and Executive

•• Split premium, cash values, policy Split premium, cash values, policy ownership and death benefitsownership and death benefits

•• Cash value can be used as supplemental Cash value can be used as supplemental retirement income and death benefit paid to retirement income and death benefit paid to beneficiarybeneficiary

•• Upon death, employer receives total premiums Upon death, employer receives total premiums paid and beneficiary receives the balancepaid and beneficiary receives the balance

Severance PlanSeverance Plan

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19% 19%

43%

60%71%

94%

6%

72%

<$10M $10M -<$20M

$20M -<$40M

$40M -<$75M

$75M -<$150M

$150M -<$335M

$335M -<$750M

$750M+

% o

f Fed

eral

CU

s

By Asset SizeBy Asset Size

Federal Credit UnionsFederal Credit Unions Percent with Nonqualified Percent with Nonqualified Plans (Plans (IncludingIncluding Severance) Severance)

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10% 10%

30%

55%65%

88%

61%

2%

<$10M $10M -<$20M

$20M -<$40M

$40M -<$75M

$75M -<$150M

$150M -<$335M

$335M -<$750M

$750M+

% o

f Fed

eral

CU

s

By Asset SizeBy Asset Size

Federal Credit UnionsFederal Credit Unions Percent with Nonqualified Percent with Nonqualified Plans (Plans (ExcludingExcluding Severance) Severance)

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Types of Nonqualified PlansTypes of Nonqualified PlansTop ExecutiveTop Executive

$10M $10M $20M$20M $40M$40M $75M $75M $150M $150M $335M $335M $750M $750M Assets:Assets: <$10M<$10M <20M<20M <40M<40M <75M<75M <150M<150M <335M<335M <750M<750M PlusPlus

SERP 457(b)SERP 457(b) * * 5% 5% * * 17% 17% 24% 24% 36%36% 47%47% 63%63%SERP 457(f)SERP 457(f) * * 3% 3% 4% 4% 12% 12% 30% 30% 18%18% 28%28% 37%37%SeveranceSeverance 6% 6% 9% 9% 10% 10% 29% 29% 29% 29% 27%27% 30%30% 59%59%SplitSplit--DollarDollar * * 3% 3% * * 13% 13% 18% 18% 9%9% 6%6% 11%11%

Have, but noneHave, but noneof the aboveof the above * * 5% 5% 5% 5% * * * * 3%3% * * **

Do not haveDo not haveNQ plansNQ plans 94% 94% 81% 81% 81% 81% 57% 57% 28% 28% 40%40% 32%32% 7%7%

Base: All Federal Credit UnionsBase: All Federal Credit Unions* Less than .5%

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Nonqualified PlansNonqualified Plans Reviewing/Considering Them?Reviewing/Considering Them?

““Is your credit union reviewing your current Is your credit union reviewing your current nonqualified benefit nonqualified benefit plansplans for executives or considering offering them in the future?for executives or considering offering them in the future?””

$10M $10M $20M$20M $40M$40M $75M $75M $150M $150M $335M $335M $750M $750M Assets:Assets: <$10M<$10M <20M<20M <40M<40M <75M<75M <150M<150M <335M<335M <750M<750M PlusPlus

Yes, reviewing existing NQ PlansYes, reviewing existing NQ Plans<.5% <.5% 3% 3% 11% 11% 2% 2% 12% 12% 4%4% 27%27% 17%17%

Yes, considering offering NQ PlansYes, considering offering NQ Plans<.5% <.5% 1% 1% 9% 9% 12% 12% 12% 12% 6%6% 15%15% 12%12%

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Fringe BenefitsFringe Benefits for for

Federal Credit Federal Credit Union Top Union Top ExecutivesExecutives

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Top ExecutiveTop Executive Car/ Car AllowanceCar/ Car Allowance

$10M $10M $20M$20M $40M$40M $75M $75M $150M $150M $335M $335M $750M $750M Assets:Assets: <$10M<$10M <20M<20M <40M<40M <75M<75M <150M<150M <335M<335M <750M<750M PlusPlus

CarCar * * 4% 4% 1% 1% 18% 18% 19% 19% 17%17% 36%36% 22%22%AllowanceAllowance * * 2% 2% 4% 4% 8% 8% 21% 21% 31%31% 45%45% 51%51%

BothBoth * * * * * * 5% 5% 1% 1% 6%6% 2%2% 3%3%NeitherNeither 99%+ 99%+ 94% 94% 95% 95% 68% 68% 59%59% 46%46% 17%17% 24%24%

* Less than .5%

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Car/Car AllowanceCar/Car Allowance

PercentilePercentile MonthlyMonthly YearlyYearly9090thth $1,000$1,000 $12,000$12,0007575thth $800$800 $9,600$9,6006060thth $647$647 $7,764$7,7645050thth $525$525 $6,300$6,3004040thth $500$500 $6,000$6,0002525thth $300$300 $3,600$3,6001010thth $200$200 $2,400$2,400

Base: Those with a car or car allowanceBase: Those with a car or car allowance

Top ExecutivesTop Executives

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Top ExecutiveTop Executive Fringe BenefitsFringe Benefits$10M $10M $20M$20M $40M$40M $75M $75M $150M $150M $335M $335M $750M $750M

Assets:Assets: <$10M<$10M <20M<20M <40M<40M <75M<75M <150M<150M <335M<335M <750M<750M PlusPlus

Cell PhoneCell Phone 3% 3% 38% 38% 42% 42% 70% 70% 83% 83% 70%70% 82%82% 95%95%EducationEducation 13% 13% 17% 17% 20% 20% 21% 21% 32% 32% 34%34% 77%77% 38%38%

Spouse TravelSpouse Travel 2% 2% 1% 1% 4% 4% 23% 23% 24% 24% 29%29% 33%33% 35%35%Reserved ParkingReserved Parking 4% 4% 13% 13% 9% 9% 1% 1% 17%17% 13%13% 29%29% 10%10%Low/No Low/No IntInt LoansLoans ** 12% 12% 3% 3% 11% 11% 11% 11% 24%24% 12%12% 23%23%

Physical ExamPhysical Exam ** ** 4% 4% 1% 1% 14%14% 6%6% 24%24% 49%49%C. Club MemberC. Club Member ** * * ** 4% 4% 11% 11% 9%9% 33%33% 36%36%

Finance CounselFinance Counsel * * 5% 5% * * ** 6%6% 18%18% 16%16% 22%22%Personal LiabilityPersonal Liability ** 5% 5% 4% 4% ** 5% 5% 5%5% ** 3%3%

Electronic DevicesElectronic Devices ** ** 11% 11% ** ** 1%1% ** 6%6%

* Less than .5%

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Benefits Provided toBenefits Provided to Board ofBoard of Directors Directors

38

$10M$10M $20M$20M $40M $40M $75M$75M $150M$150M $335M$335M<$10M<$10M <20M<20M <40M<40M <75M<75M <150M<150M <335M<335M <750M<750M $750M+$750M+

Conference ExpConference Exp 51%51% 48%48% 72%72% 96%96% 74%74% 86%86% 88%88% 90%90%Travel ExpensesTravel Expenses 35%35% 40%40% 68%68% 78%78% 70%70% 90%90% 75%75% 96%96%Educational ExpEducational Exp 32%32% 40%40% 40%40% 60%60% 50%50% 50%50% 48%48% 37%37%Meeting ExpensesMeeting Expenses 33%33% 32%32% 38%38% 53%53% 39%39% 67%67% 62%62% 87%87%Life InsuranceLife Insurance 4%4% 4%4% 5%5% 12%12% 4%4% 3%3% 5%5% 1%1%Accident InsAccident Ins 8%8% 3%3% ** ** ** ** ** 5%5%Death/DismemberDeath/Dismember ** 2%2% 5%5% 10%10% 9%9% ** 3%3% **Disability InsDisability Ins ** ** 4%4% ** 1%1% ** 2%2% * * Medical/WellnessMedical/Wellness ** ** ** ** 1%1% 4%4% ** 12%12%Travel InsuranceTravel Insurance ** ** 3%3% ** ** ** 2%2% 5%5%Spouse TravelSpouse Travel ** ** ** ** ** 1%1% 4%4% **

NoneNone 42%42% 37%37% 19%19% 4%4% 16%16% 2%2% ** **

Board MembersBoard Members BenefitsBenefits

* Less than .5%

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•• Surveyed top five executives Surveyed top five executives •• Information Information specific to your specific to your

credit union credit union is valuable is valuable –––– similar similar asset size, etc. asset size, etc. ––

•• BFB 15BFB 15--15 Report15 Report

In ConclusionIn Conclusion

40BFB 15BFB 15--15 Report . . .15 Report . . .

Summary of Comparison Credit Unions

• Size - Assets, Loans/ Leases, Members, # of Employees

• Region/State surveyed• Qualified Plans for

Employees• Field of Membership• Board Member Benefits• Review of Exec Compen-

sation & Nonqualified Benefits

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Top Executive• Base, Bonus

Percent and Total Compensation

• Direct Responsibilities

• Fringe Benefits

• Nonqualified Plans

BFB 15BFB 15--15 Report . . .15 Report . . .

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Executives #2-5• Same Information

as Top Executive

• Provided For Each Executive

BFB 15BFB 15--15 Report . . .15 Report . . .

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•• Pilar PerottiPilar PerottiMarketing CoordinatorMarketing CoordinatorBurnsBurns--FazziFazzi, Brock, Brock704 332704 332--2265 Ext. 2062265 Ext. 206pperotti@bfbbenefit.compperotti@bfbbenefit.com

For More Information . . .For More Information . . .

•• David FrankilDavid FrankilPresidentPresidentNAFCU Services CorporationNAFCU Services Corporation800 336800 336--4644 4644 •• 703 842703 842--22262226dfrankil@nafcu.orgdfrankil@nafcu.org

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NAFCU & BFB NAFCU & BFB would like your would like your credit union to credit union to

participate participate inin 20112011

Finally . . . Finally . . .

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Thank YouThank You

Jack E. Clark, PhDJack E. Clark, PhDClark & Chase Research, Inc.Clark & Chase Research, Inc.

4600 Lebanon Road 4600 Lebanon Road –– Suite ASuite ACharlotte, NC 28227Charlotte, NC 28227

704704--998998--96619661jclark@clarkandchase.comjclark@clarkandchase.com