ceo compensation


Two fundamental questions confront boards and compensation committees when they have to determine their CEO's compensation-What is needed to be competitive and still aligned with what's affordable? And what is the rationale supporting any changes you make?


The first question can seem to be the more difficult but in many ways it is the easier of the two. Overall, you want to compare favorably with other organizations and be sure that what you pay is consistent with internal standards of equity and fiscal responsibility. Data on what other organizations like yours do is readily available. You determine what's "right" or equitable as a board-sometimes with a little disagreement getting to the answer-but it is yours to determine. You decide.


The second question is more complex because it speaks to the reasons supporting changes you might make. Clearly, you want to be paying for results and performance. A balanced assessment that reflects the principal areas of accountability is essential. For any CEO, that would include measures of financial results, marketplace strength, and organizational health. Within those categories, you need a variety of measures that provide a snapshot of the state of the organization without being so complex as to be unintelligible. One last level of detail-weighting those factors according to their relative importance and impact on final results. As complex as it may sound, it's pretty simple. Once you have a sound format established, it will serve you very well from year to year with just occasional minor tweaking. Really!


Wait. You aren't done yet. With the neat and objective quantifiable measures in place, you still need to find out what the board thinks about how the CEO performs as a leader-what makes those impressive numbers possible. The cumulative impact of how major management challenges are handled, the organization's reputation in the community, the perceived organizational climate and a whole host of other factors contribute to how your CEO is seen by the board. Among the better ways to gather that kind of information is to interview board members individually using a targeted set of questions that capture the ideas of each person interviewed. That can summarized into a single narrative to supplement and support the analysis of the "hard" data. It also personalizes the feedback to the CEO when it is communicated effectively.


Why do all this, anyway? Two reasons. It's the right thing to do to ensure that the collective judgment of the board is based on consistently measured facts and carefully considered subjective input. Second, it's the right thing to do because you owe it to yourselves as a board and your members as well as to the CEO leading your credit union. Are there any better reasons?