Fired…Hired…Then Retired: The $4 Million CEO Debacle

$4 million severance one day… $474,000 salary the next

Steve Blakely joined Servus Credit Union back in March 2007, a little more than a year before the 3-way marriage between Servus, Community Savings and Common Wealth Credit Unions.

The merger, which received tremendous support from members who voted overwhelming to approve it, was the largest ever in the credit union industry, resulting in the third largest credit union in Canada and the first to canvass an entire Canadian province.

Key Question: Would members have been so enthusiastic about the merger if they had known their CEO would receive an enormous severance package?

“Unbelievable!! Where was this information when the merger talks were happening?”
— Comment on Edmonton Journal article

Blakely got $3.6 million. Why? Well the board of director’s asserts he was no longer the CEO of Servus when it was amalgamated into a new credit union and was therefore legally entitled to a severance package.

So Blakely was out of a job — fired, as it were — when his credit union was merged away.

But then Blakely was immediately rehired as the CEO of the newly merged, three-way credit union. The name of the new entity would be… (drum roll) …Servus Credit Union. Blakely’s new salary? $474,000, pumping his overall 2008 compensation up over the $4 million mark.

Reality Check: $4 million is a lot of money by any measure, but in credit union land, it’s considered a king’s ransom.

To put it in a regional perspective, the average professional playing in the NHL makes around $2 million. And these guys are the heroes of Canada.

Key Question: Blakely kept his job after the merger, so why was severance money paid? Or, as one reporter phrased it, “If you are rehired the next day by essentially the same outfit, why do you need or deserve a $3.6 million severance package?”

The board also gave itself a nice raise. The average compensation for a “volunteer” board member swelled to $59,000, up from $18,000 in the year prior to the merger. One volunteer board member’s pay, presumably the chairperson’s, jumped from $38,000 up to $103,000.

Overall, compensation for board members tripled, up from $339,000 in 2007 to $947,000 in 2008.

Side Note: The Edmonton Journal recently reported that income for Servus Credit Union was down 3%, or around a $3 million difference from the previous year. The credit union attributed a large chunk their losses to the cost of the merger. It’s not hard to figure out why.

Predictably, members are outraged

“The merger was orchestrated by the three CEO’s to feather their own nests.”
— Comment on Edmonton Journal article

When the compensation schemes from Servus became public, the story lit up the phone lines at radio talk shows and spread across the Canadian internet like wildfire. Articles and blogs received hundreds of angry comments from both members and employees. One article in the Edmonton Journal received over 200 comments, while another at the CBC website caught 80+ comments.

“I have never in my life heard of a contract that allows you get severance plus the job,” one upset member commented.

“How could the board give one staffer 8% of the year’s profits, diminishing the dividend for the other 400,000 members?” another observer wondered.

Someone else echoed this sentiment. “A system that pays one guy $4 million while splitting the rest of the profits among thousands of co-op members is a system that’s just broken.”

So much for the promises of a golden future under the umbrella of Canada’s largest, single-province credit union. Never mind the millions that was paid to Servus members last year in the form of dividends. All that goodwill is gone. G-O-N-E, gone.

Bottom Line: From the consumer perspective, this is one huge, ugly black eye for the Servus brand… and the brand for all credit unions in general. It will take years to rebuild Albertan’s trust in credit unions.

Some people have encouraged angry members to vote with their feet and take their money elsewhere. This seems like an odd suggestion, in light of the fact that members should be sticking around to vote with their votes.

“There is no difference between credit unions and banks in Canada any more. The whole idea of a credit union has been perverted and twisted to mirror banks. It’s all about PROFIT$$$.”
— Comment on CBC article

Blakely’s hasty exit

One person said what must have been on many members’ mind, “Mr. Blakely, you have your severance pay, so do us a favor and leave.”

Which is what Blakely will do. He will be retiring — presumably for good this time — on April 30. And one can only wonder if his first severance package will be all he’s taking with him.

As far as the other CEOs involved in the three-way merger… Well, the former CEO of Community Savings retired a while back. But it appears that Jeff Mulligan, the former CEO of Common Wealth, submitted his resignation last Friday alongside Blakely’s.

It is rumored that a “severance/merger bonus” was paid to all three CEOs for a total estimated cost to members around $10 million.

From the member’s perspective, this doesn’t quite sound like the bonanza of savings promised from the amalgamation, does it?

Employee morale in the doghouse

It’s unlikely the pressure to quit came from members. In all likelihood, it came from irate employees.

Blakely, after getting a $3.6 million bonus himself, recently told employees were told they may have to forgo bonuses this year. To put an even sharper sting on this, there were plenty of Servus employees whose only bonus in 2008 was a $50 gift card.

Needless to say, this has all left an extremely sour taste in the mouths of employees. Out of more than 200 comments on one Edmonton Journal article, most of them seemed to come from Servus Credit Union’s 2,000 employees. Some were disappointed. Others were outright furious. Most felt betrayed.

“I cannot support management any longer,” said someone identifying themselves as Paul, a Servus employee. “It’s going to take a lot of effort to win back the trust of many employees.”

“How are the staff supposed to look their member-owners in the eye and truthfully assure them that they work for a credit union that is serving the member-owner’s best interests?” another Servus employee wondered.

Since the stunning severance arrangement was brought to light, many of the Servus staff have been spending their time sympathizing (i.e., commiserating) with members. As one employee illustrated:

“Yes, Ma’am. Mr. Blakely is still running the Credit Union.”
“No, the Board of Directors are not embarrassed by this severance pay.”

“Yes, apparently, they are not worried about their reputations.”

“Yes, I understand you will be moving your accounts when you are able.”
“I’m sorry, I, too, use to be proud of my Credit Union.”

Apparently, there was an internal blog for all employees of Servus. It had been intended to help smooth out some of the bumps from amalgamating three separate cultures, but it was recently taken down by management after comments and concerns turned too negative.

“See what happens when you get off the internal blog?” one employee pointed out. “Now employees feel their only option is to air the dirty laundry in a public forum. Not smart.”

Before leaving his post (for the second time), Blakely responded to employees by telling them that his employment contract was an issue between him and the board. That probably didn’t do anything but hasten his exit.

Final Observation: The bigger a financial institution gets, the more responsibility it has to uphold the honor and ethics of its smaller brethren. This applies equally to banks and credit unions. Situations like this are nothing more than a lightening rod for bad press, undermining the trust and impugning the integrity of an entire industry. You could call it, “Too big to fail your peers.”

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