Go From Assumptions to Alignment on Executive Pay
Executive compensation represents one of the most critically important—and sensitive—discussions credit union boards and CEOs regularly face.
They both want the same thing: fair, defensible pay that sustains performance and honors a member-owned mission. Yet, they often view compensation through different lenses, and when the gap goes unaddressed, they risk strategy drift, unexpected departures, and talent leakage.
The fix is straightforward: align on principles, use market data rigorously, and create a cadence for transparent dialogue.
This article discusses these dynamics in depth, offering balanced insights into why divides about executive compensation occur, what impact such divides can have, and actionable strategies for reaching mutual understanding and productive outcomes.
The Root of Compensation Disconnect
A fundamental disconnect lies at the heart of executive compensation conflicts: board members and executives can have very different professional backgrounds and compensation expectations.
Credit union boards of directors bring experience from a variety of professional sectors, many of which implement compensation levels and structures that are significantly different from those in the financial services industry. For these board members, the executive salaries required to attract and retain effective credit union leadership can seem excessive or misaligned with the organization’s community-driven, member-centric values.
These board members may also think that members of the credit union will likewise perceive competitive executive pay as running contrary to the ideals of their cooperative financial institution. Moreover, boards are often acutely aware of the symbolic importance of executive compensation, recognizing that it can significantly influence the organization’s overall culture and external reputation.
Board members often grapple with the balance of offering fair remuneration with their fiduciary responsibility to preserve resources for member services. Additionally, some boards fear setting a precedent that could escalate compensation expectations across senior leadership roles, potentially straining the organization’s resources. (Read more here about the reality of this concern.)
In contrast to the board’s perspective, CEOs often view their compensation as, first and foremost, the key recognition of their extensive responsibilities, strategic insights, and risk management duties. Leading a credit union, particularly a larger or more complex institution, requires significant personal investment, substantial time commitments, and high accountability. CEOs rightly desire compensation that acknowledges these demands and aligns with their market value.
Compounding the fact that boards and executives often approach this dialogue from very different starting points, both boards and CEOs often carry unspoken assumptions or put up barriers to communication about compensation.
Here are two common examples:
A CEO who assumes their board undervalues their role and therefore underpays them. This CEO hesitates to openly discuss or challenge their board’s compensation decisions because they fear appearing self-serving or harming their relationship with the board.
Board members who suspect their CEO’s expectations are driven more by personal ambition than by realistic market factors. The board talks around the issue while never asking the CEO directly what they expect and why—a conversation that can be extremely beneficial regardless of the outcome.
Real-World Consequences of Compensation Misalignment
Unresolved compensation issues can erode trust and open communication between boards and CEOs. This deterioration can impede or impair strategic decision-making and collaborative leadership, further exacerbating organizational dysfunction. Boards and CEOs alike must recognize these consequences and resolve compensation discussions proactively and transparently.
Here are some concrete examples of potential negative ramifications of a board and CEO not being able to have a clear, transparent dialogue about compensation:
- CEOs who think they are being undercompensated are more likely to consider external opportunities quietly, without the board's knowledge.
- CEOs who consider external opportunities sometimes leave unexpectedly, which can trigger considerable disruption and lead to costly recruitment processes, strategic setbacks, and reputational harm.
- Even if they don't leave, dissatisfied CEOs may become disengaged, lead less effectively, and fail to deliver the strategic innovation and responsiveness for which they were hired.
These conversations that manage CEO compensation set the tone for the entire leadership team. When the CEO’s salary and those of their reports are “compressed” (too close together), authority blurs, recruiting and retention suffer, and emerging leaders start to doubt their career runway, raising avoidable turnover risk.
Preventing or correcting compression requires a transparent, data-anchored process—a shared peer group, clear percentile anchors, documented ranges, and a standing cadence for explaining where pay sits and why. And if the CEO simply feels underpaid, that same process resolves perception gaps without overpaying.
A Checklist for Reaching Alignment
It’s clear that effectively addressing compensation mismatches between the board and the CEO is important. Here are three key things boards and CEOs can do to make that happen. You may wish to add to this list to suit your unique situation.
PRIORITIZE TRANSPARENCY
Boards should clearly articulate their reasoning for compensation decisions, particularly how their decisions align with their member-focused mission, culture, and financial stewardship responsibilities. CEOs should openly express their compensation concerns and expectations.
USE DATA TO HELP YOU STAY OBJECTIVE
Clear market benchmarks, comprehensive industry analyses, and comparative data from peer institutions should anchor discussions of executive pay. To move beyond emotional perspectives and subjective evaluations, both CEOs and boards must rely on objective, market-based insights.
HAVE REGULAR COMPENSATION REVIEWS
To reduce misunderstandings and ensure mutual clarity, use market data in these conversations and leverage the knowledge of independent consultants who specialize in credit unions.
Proactive and structured dialogue enables boards to fully appreciate the extensive responsibilities and market dynamics justifying competitive pay. Open, data-driven communication fosters mutual understanding and sets the stage for more balanced and equitable compensation strategies.
Moving Forward: The Path to Mutual Understanding and Unity
Sustainable resolution of executive compensation concerns hinges on mutual respect, transparency, and strategic alignment grounded in shared organizational values. Credit unions must regard executive compensation not merely as an expense but as a strategic investment essential for sustaining organizational leadership, stability, and effectiveness.
Ultimately, credit unions thrive when boards and CEOs collaboratively embrace open, informed conversation about executive compensation. By proactively addressing complexities and ensuring transparent, market-informed alignment, credit unions can cultivate environments of trust, strategic clarity, and enduring organizational success.
Engaging neutral third-party experts, such as PARC Compensation Consulting, can facilitate unbiased conversations, clarify market dynamics, and structure discussions toward mutually beneficial outcomes. Such external expertise helps eliminate emotional biases, center discussions around objective data, and enable credit unions to balance mission-driven values with practical, market-aligned compensation strategies.
About the Author
J.P. O’Connor
Senior Compensation Consultant
J.P. helps credit unions build compensation strategies that align with organizational goals and support long-term success. He works directly with CEOs and boards to ensure pay decisions are transparent, data-driven, and designed to strengthen leadership retention.
With years of experience in compensation consulting, J.P. has guided organizations through complex pay challenges with a focus on fairness and strategic outcomes.
