How to Right-Size a SERP

A main barrier to putting in place a supplemental executive retirement/retention plan is that credit union boards don’t know how to start. How much beyond an annual salary and bonus—if anything—should it take to reward, retain, or recruit excellent leaders?

It may be counter-intuitive, but the key is not to start with numbers. Instead, start by defining the purpose of your SERP.

Defining the general purpose is the easy part: SERPs can help create continuity of strong leadership in credit unions. They give credit unions a tool for competing with stock options and other benefits our commercial counterparts can offer their executives.

However, each SERP should also serve a specific goal, one that’s unique to each credit union and executive. Take these three steps to create a SERP that’s designed to serve the specific goals of the recipient—while also serving your credit union’s long-term strategy.

1. Establish the SERP’s underlying purpose.

The original meaning of the R in SERP was “retirement.” And SERPs are indeed a good way to reward executives by generating additional retirement income. But today SERPs are also used for shorter-term retention and even for recruitment.

To begin gauging the scope and configuration of a SERP, be clear about which of these three Rs—retirement, retention or recruitment—you are addressing. Common scenarios include:

• Motivating an executive to stay for a specific period and/or until retirement. The SERP would be significantly different depending on the executive’s position and likely retirement date.
• Offering an incentive for a potential successor to the CEO or another top position to stay until that job opens.
• Recruiting an outside executive who would leave behind another SERP, or other supplemental benefits. 

2. Do your due diligence to benchmark your SERPs.

Not every credit union offers SERPs. But it can be a serious mistake to believe that your top executives are simply too entrenched and content to listen to other offers. If you’re wrong about that, you won’t know it until it’s too late. So do your homework now.

Here are some key research/benchmarking techniques:

• Informal peer review: Ask your contacts at peer credit unions about whether they offer SERPs and for what purpose.
• IRS Form 990: These forms are available to the public for review (several online services offer free lookups, such as 990 Finder), and they list credit union executives’ compensation, including such SERP elements as 457(f) and 457(b) plans.
• Industry compensation surveys: The annual CUES Executive Compensation Survey (cues.org/ecs) lists supplemental benefits for CEOs.
• SERP product providers: It’s a good idea to get input from more than one provider.
• Outside consultants: Commission an overall compensation study at regular intervals.

3. Learn the executive’s specific needs that you can meet with a SERP.

Discuss with prospective SERP recipients their current financial situations. For example, a “retirement income analysis” is often useful. This type of analysis yields a “replacement percentage”—that is, the percentage of the executive’s salary at retirement that his or her current retirement benefits will replace.

A common retirement planning goal is to replace 60 to 80 percent of your average monthly income. For highly compensated credit union executives, this often can’t be achieved with 401(k)/pension and Social Security.

If retirement income is your executive’s main concern, determine the executive’s current replacement percentage, and then design a SERP to close the gap to a target replacement percentage.

Or perhaps you have a younger executive with children who will be reaching college age in five to 10 years. A retirement benefit may be too far in the future to inoculate this executive against an outside offer for a higher salary. But a benefit that vests in two increments of five years—so the executive gets two payouts that coincide with college tuition—might motivate that executive to stay.

Why Raises and Bonuses May Not Be Enough

It’s relatively easy to benchmark executive salaries and bonuses. Crafting a SERP commensurate with an executive’s true value to your organization, on the other hand, can take some extra time. 

By the same token, it’s relatively easy for a competitor to top annual salaries/bonuses—but it’s more difficult to match or exceed a well-crafted SERP. Choose your SERP partners carefully, and be sure to have your legal counsel involved from the start.cues icon

Eric Earle is an executive benefits advisor at CUESolutions Platinum provider CUNA Mutual Group, Madison, Wis. For more information about benefits pre-funding and executive deferred compensation plans, contact him at 800.356.2644, ext. 665.8223. For more information about becoming a CUESolutions provider, please email kari@cues.org.

Proprietary insurance is underwritten by CMFG Life Insurance Company. Proprietary and brokered insurance is sold by CUNA Mutual Insurance Agency, Inc., a wholly owned subsidiary. This insurance is not a deposit and is not federally insured or guaranteed by your credit union. For more information, contact your Executive Benefits Specialist at 800.356.2644. Representatives are registered through, and securities are sold through, CUNA Brokerage Services, Inc. (CBSI), member, FINRA/SIPC, 2000 Heritage Way, Waverly, Iowa 50677, toll-free 866.512.6109. Insurance and annuity products are sold through CMFG Life Insurance Company. Non-deposit investment products are not federally insured, involve investment risk, may lose value and are not obligations of or guaranteed by the credit union.