NCUA joint rule intros 3 exec compensation levels

April 21, 2016

The National Credit Union Administration (NCUA) board became the first federal financial regulator to issue a revised proposed rule on incentive-based compensation at its Thursday meeting. The board voted unanimously to issue the joint rule, with comments due July 22.

The proposed rule would establish a three-tiered system for all covered financial institutions, including credit unions, with total assets of $1 billion or more. They will be divided into three categories: level 1, $250 billion or more in assets; level 2, $50 billion to $250 billion in assets; and level 3, $1 billion to $50 billion.

As of the end of 2015, there were no federally insured credit unions in level 1, one in level 2 and 257 in level 3.

“We’ve heard loud and clear from our members--credit unions are concerned the NCUA incentive-based compensation rule gives the agency too much supervisory authority over how credit unions remunerate their employees," said CUNA President/CEO Jim Nussle. "CUNA will continue working closely with NCUA to change the proposed thresholds and to minimize the extent to which the agency will review and supervise incentive compensation programs at credit unions.

"Furthermore, the agency should study in detail the relationship between incentive-based compensation and credit union performance. This is another one-size-fits-all rule from regulators. While the intent is to rein in the bad actors who brought upon the economic crisis, credit unions are yet again being saddled with regulatory burden," Nussle added. 

CUNA took the matter to its Examination and Supervision Committee Thursday afternoon and will share more details with member credit unions as its analysis progresses.

As the rule is aimed at cracking down on compensation policies that encouraged risk and led to the financial crisis, CUNA will be looking for the revised proposal to distinguish between credit unions and those entities that rewarded undue risk-taking.

Covered institutions would need to make available to NCUA sufficient detailed information about the structure of their incentive-based compensation agreements.

In its comment letter on the original proposal, issued in 2011, CUNA stressed that credit unions “have generally not provided the kinds of abusive compensation plans that are the subject of this proposal and that encouraged unmanageable risks, thereby contributing to the financial crisis.”