Salaries Freeze in a Recession

Credit Union Magazine
August 20, 2009 | COMMENTS

This year at GTE Federal Credit Union, Tampa, Fla., no employee will get a raise, promotion, or 401(k) match. But nobody's complaining.

It's simply the new reality in Florida , the “epicenter” of the recession and real estate market collapse, says Wendell “Bucky” Sebastian, president/CEO of the $1.9 billion asset institution.

“I'm proud of our employees,” he says. “They have the right attitude. They're grateful for their jobs and the members they serve. They understand that whole corporations have gone out of business and others have had enormous layoffs and draconian cuts in benefits. They're working hard to get through this and get back to, if not normal, then as close to normal as we can get.”

Instead of layoffs, GTE Federal plans to eliminate 60 staff positions this year via attrition. Doing so will save the credit union nearly $3.5 million: the average employee earns $57,500 per year, including benefits, Sebastian reports. Overall, he estimates the credit union cut $15 million in operating expenses in 2009.

“People are being asked to work a little harder to fill in the blanks from those who left the credit union's employ,” he says. “We lost money last year and we're losing money this year. We hope and believe the end is in sight, but we're not there yet. Until that takes place, I don't foresee any change in what we're doing. Frankly, if the economy gets worse, we may have to go back to the drawing board and do some other things we don't want to do.”

GTE Federal's experience mirrors that of many credit unions nationwide, according to the Credit Union National Association's (CUNA) 2009-2010 Complete Credit Union Staff Salary Survey Report. Nearly 40% of credit unions plan to freeze wages during 2009, up from 23% in 2008, 15% in 2007, and 7% in 2006, the survey reports—the highest level during the more than 25 years CUNA has studied credit union compensation, says Beth Soltis, CUNA senior research analyst.

And nonmanagers who receive a raise won't get much: 2.7% on average—the lowest wage increase in more than 30 years, reports CUNA's 2009-2010 Credit Union Environmental Scan Report (Figure I).

“Make sure employees understand why these actions are being taken and how their credit unions are handling the impact of the down economy,” Soltis notes. “This will keep morale up, engender job security, and assist retention efforts.”

Other salary- and staffing-related actions credit unions are taking this year, according to CUNA's salary survey:

• Add full-time employees: 20%, down from 30% in 2008 and 35% in 2007;
• Add part-time staff: 17%, down from 25% in 2008 and 31% in 2007;
• Increase base pay for nonmanagement employees by 2.7%, down from 3.5% in 2008 and 3.9% in 2007—the lowest wage increases in more than 30 years, according to CUNA's 2009-2010 Credit Union Environmental Scan Report; and
• Adopt pay-for-performance strategies, tying wage increases to performance goals. One-quarter of credit unions have such a system, ranging from 6% among credit unions with $1 million to $2 million in assets to 68% among those with assets of $1 billion or more.

“We've seen some credit unions make short-term [compensation] adjustments that don't align with their strategic goals,” says Heidi Donahe, president and chief marketing officer for Executive Compensation Solutions, Covina, Calif. “Keep an eye on your long-term strategy while making necessary short-term adjustments to react to the economy. A well-designed compensation package builds in the expectation that compensation will reflect the credit union's success.”

Reprinted with permission from the August 2009 issue of Credit Union Magazine.