Employee Relations and Performance Management

During An Economic Downturn

By Darla Dernovsek May 2010

WHITE PAPER FROM THE CUNA HR/TD COUNCIL www.cunahrtdcouncil.org

© 2010 CUNA, Inc. All rights reserved. Reproduction is prohibited without written consent

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Table of Contents Executive Summary 3 Introduction 4 Taking the Long View 4 Addressing Performance and Positions 5 Leadership Makes A Difference 5 Seeking Transparency 6 A Capital Switch 7 Providing Performance Feedback 7 Using Cross-Training and Process Improvement 8 Emphasizing A Career Path 9 Workforce Adjustments 10 Looking for Layoff ‘Volunteers’ 10 Adjusting Staffing and Hours 11 Filling the Gaps 11 Recognition and Rewards 12 Low-Cost Celebrations and Stress Relief 12 Dealing with Employees in Distress 13 Adjusting Recruitment and Retention Practices 14 Identifying Poor Performers 15 Retaining Top Performers 16 Benefit Adjustments 17 Conclusion: Gaining Clarity 18 Recommended Reading 19 Acknowledgments 20 About the Author 20

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Executive Summary Human resources leaders must undertake a delicate balancing act as they help their credit unions cope with economic downturns. They must control costs to help the credit union survive the downturn, while nurturing a workforce already stressed by worries about personal finances and job security. They must find ways to maintain member service levels while cutting waste and paring staff. They must retain their top performers while reining in employee compensation and rewards. They must maintain productivity and morale, while asking employees to learn new skills and adjust their schedules to help cover for hiring freezes or layoffs. A performance management approach to evaluating performance and offering rewards can help credit unions maintain their balance as they adjust compensation and staffing during an economic downturn, according to Steve Swanston, Executive Vice President of Business Development for John M. Floyd & Associates (JMFA), Baytown, Texas. “Without performance goals, credit unions that don’t have a program in place find themselves in an upside-down expense scenario without any way of evaluating their current staff,” Swanston said. Maintaining employee morale and productivity throughout this process demands strong, visible executive leadership. This is emphatically not the time for senior leaders to remain hidden in the office, issuing dictates by e-mail and memos. Instead, senior leaders must make face-to-face interaction a priority to reassure employees and help them understand the basis for difficult decisions. In addition, credit unions must strive for transparency as they communicate with employees about the factors that drive working conditions, compensation, and staffing levels. Six credit unions share their experiences and ideas for addressing performance management, coping with compensation challenges, and maintaining a strong workforce. Key issues to address include performance feedback, communication about voluntary and involuntary layoffs, rewards for top performers, dealing with poor performers, and offering help to employees coping with high levels of stress in their personal lives. While economic downturns create significant challenges, human resources leaders say their credit unions have gained clarity as they articulate their principles and develop employee policies to match them. These principles and policies will help position their credit unions to rebound as the economy recovers. “The economy has heightened awareness of certain issues and made it mandatory to address things ranging from due process for poor performers to recognition for high performers,” said Brenda Medlin, Vice President Human Resources at The Tennessee Credit Union, Nashville, which has $220 million in assets. “Definitely, it has changed the mindset of some managers who see how much better their team performs when expectations are clearer, feedback is given on a regular basis, and employees are made to feel valued.”

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Introduction Economic downturns can be the equivalent of a “perfect storm” for human resources managers charged with boosting performance and maintaining morale while instituting cost-saving measures that hit employees in their pocketbooks. Both elements of the equation are essential for any credit union’s future. For short-term survival in a downturn, credit unions must restrain day-to-day operating costs with measures that may include voluntary or involuntary layoffs, the elimination of raises, adjustments in benefits, and other cost-cutting measures. Yet for long-term survival, the credit union must retain top performers, prepare promising workers for advancement, and reward team members willing to make an extra effort to ensure the organization’s success. Balancing both of these needs positions credit unions to thrive when the economy rebounds. It starts with helping employees understand why the credit union must alter its approach to employee compensation and performance management. Taking the Long View During an economic downturn, it can be tempting for credit unions to lapse into a “just get through it” mentality. While it’s true that credit unions must adjust expectations and policies to match financial realities, they also need to position operations for better times, according to Steve Swanston, Executive Vice President of Business Development for John M. Floyd & Associates (JMFA), a revenue enhancement and performance improvement consulting firm based in Baytown, Texas. A key challenge is making decisions about workforce size and reward systems based on a clearly defined process that helps the credit union recognize and respond to financial realities. In terms of workforce size, credit unions sometimes choose to preserve jobs at all costs. While that can be admirable, it can also be imprudent if the credit union faces financial limitations. Another option is to make layoffs based on “last in, first out” hiring dates, which quickly reduces wage and benefit expenditures but may leave the credit union without vital skills to complete essential tasks. Instead, Swanston suggests that credit unions can gain from having a clear process in place to analyze performance based on organizational objectives and industry benchmarks. That creates a basis for systematic decisions about workforce levels and rewards in a way that furthers the credit union’s progress toward strategic objectives. In an organization with a compensation system driven by performance management, that means creating a culture that Swanston describes as “member-facing and sales-driven.”

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Addressing Performance and Positions Performance and pay are often seen as inseparable. Yet separating the expectation of steadily increasing monetary rewards from high levels of performance is often required during an economic downturn. Adjusting the compensation structure in response to an economic downturn typically involves two steps. The first is the short-term step of freezing, reducing or even eliminating merit- and tenure-based raises. Swanston noted that positioning pay adjustments as interim measures that reflect a mentality of “We’re all in this together” helps employees accept the measures as a necessary response to an extraordinary situation. The second step for organizations seeking to implement a performance management approach is much more difficult, Swanston said. “To get into a performance management environment and a performance management culture, you have to go in and revamp the entire compensation structure top to bottom, layering in the performance incentive for all the different types of positions.” He recommends linking this structure to clear measures, such as goals created through a management by objective (MBO) approach. “We would recommend starting at the teller level and then working through every position and identifying individual and team-based MBOs,” Swanston said. “That way they have the ability not only to excel individually but to use teamwork and cooperation to pursue those goals.” Having goals in place creates a system that offers direction to leaders and reassurance to employees seeking to understand the organization’s decision-making process during a tense time. “Without performance goals, credit unions that don’t have a program in place find themselves in an upside-down expense scenario without any way of evaluating their current staff,” Swanston said. Leadership Makes A Difference Maintaining good employee relations during difficult times demands strong leadership. The CEO and other senior executives must send strong messages, set clear examples, and set aside the time required to reassure employees concerned about the future of their jobs and, by extension, their families. “The morale piece to me is an absolute leadership function,” Swanston said. “From the CEO on down, the leaders of the credit union have to lead by example.” Senior leaders should start the process by sharing in any compensation adjustments that impact employees at other levels of the organization. If everyone in the credit union is expected to come in earlier, stay later, or pick up extra duties without additional pay, the CEO and other senior leaders must set the pattern with their own conduct. They must also be willing to be visible and accessible so employees can ask questions and convey concerns. This is emphatically not the time to remain hidden in the office,

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issuing dictates by e-mail and memos. Instead, senior leaders must make interaction a priority to reassure employees and help them understand the basis for difficult decisions. This interaction should occur face-to-face whenever possible and should be as inclusive as possible. For example, the CEO and senior leaders should look for opportunities to visit every branch and speak with every group of employees, rather than just a handful of select supervisors. Seeking Transparency Economic downturns can plunge even the most stoic workers into emotional bottomlands. For credit union employees, economic anxieties related to the recession are heightened by their insider knowledge about how credit unions’ bottom lines are impacted by measures such as special assessments, higher chargeoffs and delinquencies, and razor-thin profit margins. Keeping morale up in these conditions requires keeping people informed, according to human resources leaders. Transparency about financial performance and future prospects gives employees a sense that everyone is working together and nothing is being hidden. This is particularly important when credit unions make decisions that impact working conditions, compensation, and staffing levels. “Everything that we know about our financials, our employees know,” said Diana Wozniak, Manager of Human Resources at $264 million asset Tampa Bay Federal Credit Union, Tampa, FL. “It’s published, it’s presented, it’s given to them. They understand that loan losses have been a challenge for us in 2009 and 2010. I think that helps.” Having the CEO and senior leaders remain visible makes a difference. Several credit unions highlighted the importance of providing access to information and holding roundtable discussions to allow senior executives to explain changes. In smaller credit unions, many CEOs strive to practice “management by walking around,” which allows employees to have low-key, low-risk conversations about the current environment, challenges, and plans. At The Tennessee Credit Union, Nashville, President and CEO Michael Martin has made special efforts to make employees feel appreciated during the downturn, according to Brenda Medlin, Vice President Human Resources. Martin frequently writes personal notes to let the credit union’s 88 employees know their extra efforts are noticed and appreciated. In addition, he made an elegant wooden pen for each employee at his own expense and presented the pen to the employee on his or her anniversary. “People really value those,” Medlin said. Martin also bought pedometers for all employees participating in the credit union’s Corporate Health Challenge. Other managers have followed his example by providing more personal feedback to employees to encourage positive examples and quickly correct poor practices. Equally important, leaders at the $220 million credit union have created a number of committees aimed at helping gather input from employees at all levels of operations to tackle issues

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such as training, marketing, and social networking. The combination means that employees feel heard and appreciated, despite a 2009 salary freeze. A Capital Switch Addressing issues linked to the larger economy also creates opportunities for educating employees. In 2009, the economic downturn’s impact in California’s Silicon Valley meant $1.3 billion asset Technology Credit Union, San Jose, was unable to offer a merit increase. Yet the credit union felt strongly about the importance of rewarding top performers, according to Angela Toomey, Employee Relations Manager. So instead of increasing base pay, the credit union implemented a merit award program that paid out a merit increase in four installments over the year, but did not change the level of base pay. Technology Credit Union also shifted its bonus plan to link payments to capital levels, rather than earnings. “People want to work for credit unions that are successful and well-capitalized,” Toomey says. “We educate our employees about our financials regularly and they have a clear understanding of our financial picture as a whole.” While some elements of the compensation structure have changed, Technology Credit Union has continued to emphasize performance standards and accountability measures that are in line with corporate values. This structure reinforces the importance of vital financial measures and links them to financial rewards. At the same time, Technology continued to offer recognition and rewards to improve performance and retain top performers. Providing Performance Feedback When employees are anxious about their jobs, they are even more eager than usual to receive feedback about their performance. Anita Countryman, Vice President-Human Resources at $80 million asset Rock Valley Federal Credit Union, Loves Park, Ill., noted that monitoring employee performance is critical to maintaining a strong workforce in tough times. Rock Valley encourages supervisors to hold quarterly reviews with employees in addition to the annual performance review. The credit union ties those reviews to a balanced scorecard system, which helps reinforce the link between rewards and performance. Employees can see how their job fits into the bigger picture, increase their business acumen, and take personal responsibility for the success of both their positions and the entire organization. “Fortunately, we have not had to place a wage freeze; however, merit increases are modest and monitored closely,” Countryman says. “We have a bonus program that is based on a balanced scorecard approach, looking at several organizational key performance indicators (KPIs), which did not have a payout based on 2009 financials. It was a difficult year and our staff understood. We continued to monitor and analyze the KPIs so measurements were reported to keep the communication consistently flowing.”

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Providing timely reviews is crucial. Employee surveys at The Tennessee Credit Union showed that one of employees’ greatest complaints was late performance reviews, demonstrating that employees desire information that helps them perform well. Other credit unions echoed employees’ desire for timely feedback. Employees also need a way to express concerns about management issues. For example, employees who see a credit union upgrading office furnishings while they are being asked to do more for less may question the credit union’s priorities. Giving them an opportunity to vent is important, along with reminding them of the importance of maintaining the appearance of facilities so members have faith that the credit union has the strength to withstand difficult times. In some cases, credit unions may need to offer an opportunity for employees to ask questions anonymously. Examples include allowing employees to direct questions to the executive team online or providing a comments section on employee surveys. Responses to questions are then shared through online and print newsletters or memos as well as face-to-face discussions. Using Cross-Training and Process Improvement Some credit unions are turning to cross-training to add flexibility to the workforce. In Tampa, FL, where the unemployment rates hovered near 12% in late 2009, senior leaders at Tampa Bay Federal Credit Union sent a clear message to the workforce: “Learn new things.” Wozniak said Tampa Bay Federal’s leaders wanted employees to know that the critical deciding factor in whether they were still part of the credit union’s workforce at the end of the downturn was a willingness to learn to function in a variety of operations areas. That meant that if collections asked for two weeks of help, front-line employees should volunteer for the assignment and celebrate the opportunity to learn new skills. Flexible work assignments are essential because the credit union pared its work force from 123 employees in mid-2008 to 85 at the start of 2010. Wozniak noted that employees were asked to take on new duties even as a 5% pay reduction was implemented in April 2009. The pay reduction was achieved by reducing base pay for salaried employees and reducing the full-time workweek to 38 hours for hourly employees. Salaries were expected to remain frozen throughout 2010. Meanwhile, the credit union maintained its certification program for front-line staff, which helps employees in the teller line, loan department, and call center move up through the ranks from teller to certified teller and finally to senior teller. Each advance represents a roughly 6% increase in pay. In addition, the process improvement program was left in place to allow employees to continue to receive a share of savings achieved when suggestions for operations improvements are successfully implemented. Employees can earn up to 12% of the 12-month value of the savings, which is paid out in segments of 20% when the change is implemented, another 30% six months later if it remains in place and is working as designed, and a final 50% at the end of the 12-month period if the change has become part of the ongoing way to do business.

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“Now that we are doing at least the same amount of work and a lot of times, more work with fewer people, productivity has to remain or we can’t continue to serve our members’ changing financial needs,” Wozniak said. “People need to work harder and need to work smarter. We need process improvements so we can serve members and still have fewer employees.” Adjusting the workforce through attrition typically requires not just asking employees to do more with less, but in some cases accepting permanent transfers to new areas. Since 2008, Technology Credit Union has reduced its head count by about 30 employees to a workforce of 253 in early 2010 through internal development of employee talents. For example, areas that had excess staffing were called upon to offer help to areas with a high demand, such as loan adjustments or real estate lending. “We developed many people by challenging them to do different things that they traditionally would not have done,” Toomey said. That meant asking call center representatives to work on weekends to help process real estate loans, or pulling people from branches to work on loan adjustments to help combat high delinquency rates. Many credit unions are using cross-functional work teams to tackle special projects or serve on committees. Several credit unions also noted the importance of helping employees develop their talents, even in a challenging environment. For example, a teller with a background in graphics can use her talents to help a small credit union redesign its Web site, while a loan officer with an interior design degree can serve as the coordinator for a branch redesign. Cross-training also is vital, especially at small credit unions, to make sure that there is a back-up plan for each position as staffing levels decrease. While this simply makes sense in any situation, it also enables employees to see the value of their contribution in helping the credit union continue critical operations in a crisis. Emphasizing A Career Path While an economic downturn might make many employees less likely to shift jobs, it also makes those same employees take a closer look at how they can prepare for advancement with their current employer. An employee engagement survey at $265 million asset Option 1 Credit Union, Grand Rapids, Mich., showed that the potential for advancement was a huge factor in employees’ perceptions about the credit union. “They want more training, they want more opportunity, they want to be cross-trained in different areas, they want a career path,” said Human Resources Manager Lisa Cooper. “They want an opportunity to apply for everything.” In response, Option 1 is strengthening its training and development services. In 2010, all employees will get a career path profile that helps them understand the steps that must be taken to prepare for advancement. The profile is shared with supervisors, and employees have the option of requesting a face-to-face meeting with their supervisor and trainers to

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obtain personal guidance on achieving their goals. At the same time, Option 1 is educating supervisors about how to coach and mentor employees to prepare them for advancement. Finally, cross-functional work teams are expected to give employees the opportunity to work with colleagues from a variety of departments to hone their understanding of what happens at different levels and different functions of the organization. Workforce Adjustments Transparency also is important for credit unions making difficult decisions about the size of their workforce. These decisions are easiest when they can be accomplished through attrition, but that may not be possible during an economic downturn. Rock Valley cut two positions in 2008 and another two positions in 2009, in addition to reducing the workforce through attrition to lower its total workforce to 47 employees in early 2010. “It was very emotional to the entire staff as we’re a close-knit group,” Countryman said. “We tried to be as transparent as possible and explain the business reasons for these tough decisions.” The decision to eliminate positions was discussed in small group meetings with supervisors and followed by a letter from the CEO. Additional information was provided at all staff meetings. Employees were reassured to learn that the credit union continued its policy of offering re-employment assistance to the departing employees to help ease their transition. While cuts are sometimes required, human resources managers are often concerned about the damage done when credit unions cut too deep in terms of either positions or salaries. If that happens, employees can feel nervous or even become emotionally disconnected from the credit union. That makes it easier for them to seek other employment when the recession ends, even if the gains offered from the new job are relatively minor in financial terms. “We want to make sure we don’t cross that line where people get the thought that as soon as the market picks up, I’m out of here,” one manager said. “It’s my hope that we can retain them.” Looking for Layoff ‘Volunteers’ Allowing employees to volunteer for changing roles, furloughs, and even layoffs adds to the sense of working with employees rather than manipulating them. “When we knew that layoffs were inevitable and we had tried every avenue to get to a reduced workforce without it, we put together a voluntary severance package,” Wozniak says. Tampa Bay held employee meetings to announce that the first five people who stepped forward could take advantage of the package. That was extended to six people when six volunteers immediately stepped forward.

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“In layoffs, people develop a sense of fear,” Wozniak says. “When we did them voluntarily, people wanted to go so you didn’t feel as bad for them and you didn’t fear for yourself.” Attrition eventually pared another 14 employees from the staff. At that point, Tampa Bay decided it needed to eliminate three management positions to keep the workforce in balance, which required involuntary layoffs. While that created some uncertainty among employees, the credit union offered reassurance and maintained morale by talking openly about the need to balance the workforce and reduce expenses. Technology Credit Union was able to avoid layoffs, but it did encourage employees to volunteer for a work reduction program that helped temporarily reduce costs during a difficult time. “We said that if you’ve always wanted a trip around the world or a summer off with your kids, now is the time,” Toomey said. Fewer than 10 employees took advantage of the offer, but those who used it were grateful for the opportunity, creating a win-win for the credit union and employees alike. Other voluntary measures taken by credit unions include allowing employees to volunteer for temporary or permanent reassignments or to pursue additional training that would prepare them to “swing” to other departments. Adjusting Staffing and Hours When credit unions are searching for ways to reduce expenses, they may want to take a closer look at operations to learn more about how members are using branches. One option is reducing the hours of operations at selected branches, such as closing lobbies and leaving only the drive-up open on selected dates and times. Some branches that fail to meet expectations may be closed. Others with lower-than-expected levels of traffic may require fewer staff for operations. For example, Tampa Bay Federal Credit Union originally operated its outlying branches on a Tuesday through Saturday schedule. Over time, they added Monday hours to those branches. In 2009, low levels of branch traffic on Mondays led the credit union to return to a Tuesday through Saturday schedule. That cut costs while minimizing the impact on members, based on branch volume measurements. Filling the Gaps Northeast Family Federal Credit Union, Manchester, Conn., has dealt with the stress of the economy by instituting a hiring freeze, which means that anyone who resigned or retired in 2009 was not replaced. This is the first time the $60 million asset credit union has taken this approach, which helped it avoid layoffs. Northeast Family has turned to interns hired for its student credit union at a local high school to help fill the gaps created by attrition. Since 2007, Northeast has hired two interns from the junior class each year. The interns work throughout their senior year as well. The interns are not paid while they work at the high school, where they earn classroom credits for their efforts. Yet their training pays off if they choose to apply to

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work part-time after school or during weekends and vacations at Northeast’s other branches. Adding the interns to the workforce helps Northeast provide coverage when other employees request time off. “During the summer, it’s great,” says Dorothy Mazurek, Vice President of Member Services. She noted that while the students’ pay of $10 an hour is below the credit union’s standard pay schedule, the students still earn more than they would working in many other retail or service industry jobs. Recognition and Rewards It’s tempting to cut back on recognition and reward programs as budgets tighten. The perception is that salaries are essential while recognition and rewards are extras. But that thinking tends to overlook the high return on investment that comes from letting employees know their efforts make a difference. While it may not be possible for credit unions to continue bonus payouts during a recession, they should maintain recognition and reward programs if possible. Simple steps include recognizing employment anniversaries, celebrating the end of special projects, and allowing employees to share in the results of process improvements or the achievement of major objectives. In some cases, credit unions are developing incentive programs as a retention strategy that creates loyalty even during a recession. The incentives may include additional earnings and/or gifts with a high perceived value, such as gift cards or other items. These incentive rewards are typically provided in addition to base pay to enhance performance, rather than as a way to restrain base pay levels. By funneling additional rewards to top performers, participating credit unions hope to recognize high levels of performance and fuel top performers’ enthusiasm for developing a career path within the credit union. Low-Cost Celebrations and Stress Relief In addition to formal reward and recognition programs, credit unions find many ways to help employees build a sense of teamwork by celebrating together. In some cases, these celebrations are triggered by significant achievements, such as completing a data processing conversion or finalizing a merger. In others, employee milestones such as a birthday or an employment anniversary can prompt the credit union to pause to recognize the event. Ideas shared by credit unions included:

• Providing cupcakes to celebrate employee birthdays or anniversaries. • Replacing restaurant lunches with staff potlucks to recognize holidays or celebrate

the completion of projects. In some cases, the credit union or the supervisor provides dessert or another item to make the meal feel “special.” Other credit unions have chosen to emphasize wellness by asking employees to bring in healthy snacks as part of a “snack day” tradition.

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• Encouraging supervisors to recognize birthdays with a personal card. • Giving employees a gift card on their employment anniversary. Even a small gift

card, such as a $5 card for a local coffee shop, can make employees feel appreciated.

• Holding a WiiTM tournament to encourage wellness and build a sense of fun. • Sponsoring a cooking contest. • Dressing up for holidays and special events throughout the year, which may

include “casual dress” days. • Sharing stress relieving tips at staff meetings and in employee publications to give

employees tools for coping with the higher levels of personal and professional stress caused by economic distress.

• Offering “chair massages” of the neck and shoulders to employees as an economical way to reward extra effort or offer stress relief. Some managers at The Tennessee Credit Union gave employees a fifteen-minute massage as a holiday or birthday gift.

Simple measures that bring people together can help maintain morale and build a sense of teamwork that pays off as employees cope with change. In some cases, these events may carry a significant price tag, such as providing part of the meal for a summer picnic or offering a banquet-style meal for a year-end party. Yet credit union managers say those expenditures are worthwhile if they nurture their greatest resource – their employees. Dealing with Employees in Distress Credit union managers participating in this white paper agreed they are seeing far higher levels of personal stress among employees, including personal finance problems that arise from a spouse’s job loss, rising costs, healthcare emergencies, or a decline in home values. Both the number and severity of problems are higher than many human resources leaders have seen in their careers. “We’ve had workers who were considering leaving their jobs just so they could cash in their 401(k),” Toomey said. “Most credit unions have not experienced that kind of behavior. We’re in unprecedented times and people are just more stressed. A big part of my job is helping people work through these things.” In some cases, making referrals to an employee assistance program (EAP) helps employees save their jobs and careers by giving tools to cope with personal problems that are interfering with work performance. Unfortunately, some credit unions have cut EAP services as a way to deal with tight budgets. Credit unions that make personal finance counseling available to members have also referred some employers to these services, particularly if the services are provided by telephone so employees do not have to seek advice from co-workers. Some credit unions hold quarterly workshops aimed at personal health, wellness and stress reduction, focusing on topics such as budgeting, managing stress, and maintaining a healthy lifestyle. Even credit unions without an EAP or a formal program to support employees’ personal needs can take simple steps, such as sharing

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stress management techniques with employees by using free materials or speakers from local healthcare facilities or other resources. Credit unions report that reaching out to troubled employees can be invaluable in maintaining both a productive workforce and a sense of teamwork. Training supervisors to recognize signs that the employee is distressed and then approach them with offers to listen are important. “ ‘Know your people’ is our mantra,” Countryman says. “Keep in touch with them on a regular basis, both personally and professionally. Employees don’t check their troubles at the door. Yes, we all need to do our job and take care of members, but that is a whole person who sits behind that desk. Our staff has seen us reach out to people who have had a child born with physical ailments or a flooded home, or an unexpected divorce. They know our managers’ doors are open.” Adjusting Recruitment and Retention Practices It seems that both recruitment and retention ought to be easier as unemployment climbs. Unfortunately, human resources leaders say that is rarely the case. One recruitment challenge is handling a high volume of applications, even when there are no open positions. Many of these applications are likely to come from unqualified applicants who assume that anyone can be a teller, even if they have absolutely no relevant experience. To control the flood of applicants and find qualified prospects suited for a multi-tasking, cross-training environment, credit unions suggested several tactics:

• Move applications online. Like other departments, the human resources staff is probably doing more with less. Moving applications online reduces the burden of handling paper and makes it easier to share information via e-mail.

• Reduce advertising. Many credit unions have cut back on advertising for open positions. Tampa Bay Federal Credit Union eliminated advertising and lists entry-level positions only on its Web site under the employment link, which still generates up to 50 applications for an open position. The exception to this approach is hard-to-fill positions that demand specialized skills, which may still require advertising online or in publications to reach a broader range of applicants.

• Only accept applications when job openings exist. This allows the credit union to focus on filling actual positions, rather than keeping track of dozens of applications. Some credit unions make an exception for prospects submitting formal resumes.

• Encourage employee referrals. In some cases, referrals may result from informal programs that encourage employees to tell qualified applicants about the job. Some credit unions continue to offer financial rewards for successful referrals because they believe referrals result in quality applicants who are more apt to thrive within the credit union. The Tennessee Credit Union offers a $300 reward to employees referring a new hire who successfully completes a designated training period, usually one to two months.

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• Purchase an applicant tracking system. These systems store applications and ask applicants to respond to questions that can “rule in” or “rule out” applicants for the position. The applications can then be shared among a designated group of human resources employees and supervisors, who can make notes, set up interviews, and complete other steps in the process. The cost of these systems has dropped considerably in recent years, allowing Option 1 Credit Union to purchase the Profiles On Demand system for $2,000 from Profiles International, Waco, Texas.

• Screen employees rigorously. Credit unions are doing more testing for skills and personality styles to find the best fit for each position. Managers note that in an environment where employees are handling multiple tasks, one bad hire can increase the pressure on an entire team.

• Be picky. When the first batch of applicants fails to measure up, credit unions are proving unwilling to settle for prospects that are merely “OK.” Instead, they will repeat the recruitment and interview process to find prospects they can groom for long-term success.

Identifying Poor Performers Asking employees to do more tends to highlight the problems that are created or aggravated by poor performers. In some cases, this means that supervisors who were unwilling to confront a problem employee in the past are now willing to document performance problems and act on them. It also makes supervisors more critical about new hires and more willing to terminate a trainee who is unlikely to acquire the skills or work ethic required to thrive. While it is tempting to use a “last in, first out” policy to reduce the workforce, Swanston said identifying the poor performers is much better for the organization over time. “In this market if people have to go in order for the credit union to survive, then you’d best be sure it is the poor performers who are leaving and that you have a good evaluation system to identify who they are,” Swanston says. Identifying poor performers may require the credit union to take a hard look at its strategy for monitoring individual performance. In some cases, Swanston said credit unions facing the need to reduce salary and benefit expenditures should begin the process by benchmarking their employment levels against their peers. If they find that they are over capacity, they have a starting point to figure out how many positions should be cut and determine where the cuts should be made. This process often highlights areas where performance is low, which may indicate a need for more training, new tools, new tactics, or even just the replacement of substandard employees. Ideally, documentation will be available to prove that employees have a pattern of falling short of performance goals. However, credit unions admit that managers sometimes complain about poor performers, but fail to establish clear expectations and then document where employees fall short as part of a due process approach to addressing problems. If due process and documentation of performance shortfalls is lacking, the

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credit union must quickly identify employment laws and regulations that apply to the situation. Typically, creating short-term objectives, clearly communicating the objectives to the employee, and providing guidance to help the employee achieve them over a 90-day period can then address the problem. If the employee has failed to meet the minimum goals after 90 days, Swanston said, “The conversation becomes easier because people have been informed of the process.” The human resources professionals contributing to this white paper emphasized that their tolerance for poor performers has diminished. “The people who aren’t performing up to our needs or their capabilities stick out so much more in this economy when we have fewer staff members,” one manager said. “They can’t hide themselves any more. It is more important than ever to transition them out of the organization or get them up to speed.” Even after the recession ends, managers recommend remaining consistent in the treatment of poor performers throughout the organization. Some have even developed ongoing education programs to help supervisors become aware of performance management practices and relevant policies. By developing and sharing standards now, these managers are helping their credit unions cope with employees who become a burden instead of a benefit for members, co-workers, and managers. Retaining Top Performers Some observers believe that it’s easy to retain top performers in a recession. But human resources leaders say the reality is that the best employees can almost always find a job in a relatively short period of time. When a supervisor groused that employees didn’t need indications of personal appreciation because “They were lucky to have a job,” one human resources leader responded with these words: “Really? Because I think we’re lucky to have them. We can’t serve our members without them.” In reality, solid and reliable performers thrive when they know that their hard work is noticed and appreciated, especially by their immediate supervisor. A mix of formal and informal recognition can be used, including:

• Performance-based incentive programs, which channel rewards to top performers and highlight their successful tactics.

• Leadership training opportunities, which can include formal training programs as well as formal and informal mentoring by supervisors and senior leaders.

• Regular feedback from supervisors, which can develop a mentoring relationship or complement a mentoring system that matches promising employees with managers in other departments. Some credit unions require that each employee have one-on-one time with their supervisor at least once a month.

• Cross-functional training or cross-functional committee appointments. • Personal notes of appreciation. • Flexible scheduling and/or job sharing to help employees achieve work/life

balance.

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• A paid time off policy that gives employees more options in using sick time and vacation time.

• Telecommuting for positions with suitable responsibilities. One human resources manager warns credit union leaders of the risk involved in failing to recognize top performers who are nearing retirement age because of assumptions that they are too old to be hired elsewhere and too near to retirement to quit now. “Sometimes, senior leaders think older workers have nowhere to go,” the manager said. “That’s really dangerous thinking and I try to disabuse them of it. The people who carry the heavy loads should be rewarded.” Swanston noted that layoffs, lower compensation, and greater workplace demands could make it easier for good employees to depart, either now or later. “In a good market, the pain of leaving is too great if you’re in a comfortable situation,” Swanston said. “But if your credit union is in a state of flux and lacks cohesive leadership and someone comes calling, in this market it’s actually more likely that people will consider leaving.” Once the recovery begins, a trickle of departures could quickly turn into a flood. A 2009 study by Robert Half International and CareerBuilder revealed that once a recovery is underway, 55% of employees plan to leave their current job by changing employers, making a career or industry change, or returning to school. That proves the point that while it’s reasonable to depend on top performers – after all, being dependable is part of what makes them a top performer – it’s risky to take them for granted. Benefit Adjustments Several credit unions reported making adjustments to benefits as a response to economic pressures. For example, high increases in the cost of health benefits prompted some credit unions to ask employees to contribute more in the form of premiums, co-pays, or deductibles. It’s important to tell employees about these benefit changes as soon as possible, particularly if employees are already coping with declining income due to reduced hours or the loss of a spouse’s job. In many cases, credit unions sought to minimize the impact of benefits cuts or retain the most significant benefit features. For example, one credit union had to eliminate its wellness fair and health risk assessment in 2009, but continued to offer on-site flu shots and tentatively plans to reinstate the wellness fair when conditions improve. Some credit unions have shifted benefits from their standard package to voluntary options, such as accidental death and disability insurance. Again, education and communication are important so employees realize the benefit has changed and have a basis for making decisions about whether to allow the benefit to lapse or take steps to retain it. At the same time, credit unions must communicate with employees about ongoing benefits. For example, Technology Credit Union has an arrangement that allows employees to use concierge services such as dry cleaning or ordering pre-made meals.

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These services are available at the employee’s expense, so employees experience their benefits of these conveniences without increasing the credit union’s costs. Work/life balance is an intangible benefit, but one that credit unions continue to emphasize. While changing economic conditions and a smaller workforce have increased the pressure to be productive, the credit unions contributing to this white paper emphasized that being “family friendly” remains a priority and continues to set them apart from other financial service providers when competing for employees. Conclusion: Gaining Clarity For many credit unions, tough times have an unexpected benefit in forcing them to examine their values and their operations, including how they relate to employee compensation and performance management. Holding fast to the credit union’s vision, mission and values is a critical part of this process. Credit union leaders can continually reference the principles articulated by the mission, vision and values as they communicate with employees and share the framework that guides their decision-making. Making tough decisions about compensation and staffing levels can bring an unexpected clarity to the principles that guide policies, which then must be articulated to employees and members alike. “The economy has heightened awareness of certain issues and made it mandatory to address things ranging from due process for poor performers to recognition for high performers,” Medlin said, echoing concerns expressed by several white paper participants. “Definitely, it has changed the mindset of some managers who see how much better their team performs when expectations are clearer, feedback is given on a regular basis, and employees are made to feel valued.” Adopting these practices now could have long-term benefits for credit unions as they prepare to cope with high levels of management and employee turnover that are expected to occur as the Baby Boomer generation reaches retirement age. Swanston pointed out that 60% of all executive and management staff members are Baby Boomers who are likely to retire between 2010 and 2019. “Sixty percent of your knowledge base will be exiting the industry within the next 10 years,” Swanston said. “What are you doing to attract new people who want to make a career for themselves?” Answering that question requires credit unions to explore ways to help employees enhance their skills, learn from mentors, gain experience in a variety of departments, and remain on the cutting edge of their industry. Providing a human resources approach that hones performance will help credit unions move beyond the recession as they develop the human capital required for long-term success.

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Recommended Reading Credit Union National Association Information Resource Center

April 2010

Anonymous. 2009. Hr strategies to cope with the economy. HR Focus 86, no. 1: 1. ________. 2009. Staying strategic in a changing economy. HR Focus 86, no. 3: 3. ________. 2009. Steer your company through uncertainty. HR Focus 86, no. 2: 1. Fox, A. 2009. The big chill. HRMagazine 54, no. 3: 28. Frauenheim, E. 2009. Talent tools still essential. Workforce Management 88, no. 5: 20. Ladd, S. 2009. In lean times, consider hiring. Financial Executive 25, no. 10: 18. Liberman, K. 2009. Cu staff in crisis. Credit Union Management 32, no. 1: 48. Matthew, Boyle and Balfour Frederik. 2009. Cutting costs without cutting jobs. Business

Week, no. 4122: 55. O'Neil, L. 2009. Executing strategies for a new way of doing business. HRMagazine 54,

no. 6: 12. Schramm, J. Economic improvement hinges on employment. HRMagazine: 2. ________. 2009. Economic meltdown creates a challenging new year. HRMagazine: 4. Wells, S. 2008. Managing a downturn. HRMagazine 53, no. 5: 48. Wingfield, C. 2009. Retaining key employees in a tough economic environment. The Tax

Adviser 40, no. 3: 176. Zeidner, R. and S. Wells. 2009. Strategies for saving in a down economy. HRMagazine

54, no. 2: 26.

Many of the articles on this list are available from the IRC. To order, please call 1-800-356-9655 ext. 4308.

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Acknowledgments The Credit Union National Association (CUNA) and the author appreciate the contributions of the credit union experts and consultants who shared information for this white paper. Special thanks are due to: Lisa Cooper, Human Resources Manager Option 1 Credit Union, Grand Rapids, Mich. Anita Countryman, Vice President – Human Resources Rock Valley Federal Credit Union, Loves Park, Ill. Dorothy Mazurek, Vice President of Member Services Northeast Family Federal Credit Union, Manchester, Conn. Brenda Medlin, Vice President Human Resources The Tennessee Credit Union, Nashville, Tenn. Steve Swanston, Executive Vice President of Business Development John M. Floyd & Associates Inc., Baytown, Texas Angela Toomey, Employee Relations Manager Technology Credit Union, San Jose, Calif. Diana Wozniak, Manager of Human Resources Tampa Bay Federal Credit Union, Tampa, Fla. About the Author Darla Dernovsek specializes in writing about financial services, marketing, and technology. Her published work includes numerous books, white papers, and articles written for the credit union industry. Dernovsek has also worked as a marketing executive in the healthcare and electronic funds transfer (EFT) industries and as a newspaper reporter and editor. She is based in Clinton, Wisconsin.

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The Credit Union National Association, Inc. (“CUNA”), through its Council, offers the information and policies within this white paper for information only. The enclosed information should not be considered legal advice and should not be relied upon or substituted for the same. The Council does not provide legal, accounting, or other professional advice, and materials should be reviewed with a competent professional prior to use. The Council provides no warranties, expressed or implied, regarding the materials published therein. Reference herein to any specific vendor, commercial product, process or service does not constitute or imply endorsement, recommendation or favoring by CUNA. The views and opinions of the author(s) do not necessarily state or reflect those of CUNA and shall not be used for advertising or product endorsement purposes, unless a formal endorsement relationship exists with the third party vendor. If you question whether a product or service is formally endorsed by CUNA you may contact cunawebmaster@cuna.org. To order a copy of this white paper, please contact CUNA’s Member Relationship Management department: Phone: (800) 356-8010, Ext. 4157 FAX: (608) 231-1869 Postal Mail: P.O. Box 333, Madison, WI 53701-0333 Please reference Stock No. 29587P when ordering This white paper series is produced by the CUNA HR/TD Council. For more information about this series, or about Council membership, contact:

Edith Thayer, Council Administration Phone: (800) 356-9655, ext. 4047 FAX: (608) 231-4061 E-mail: ethayer@cuna.coop

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