Trades Jump on Proposed Rule For Executive Golden Parachutes
The NCUA's proposal to limit golden parachutes and indemnification payments is overbroad and would place unnecessary restrictions on credit union boards, according to comment letters filed by CUNA and NAFCU.
CUNA contends that the agency hasn't justified the need for these changes to the rules impacting natural person credit unions, which are similar to previous rules that regulate the activities of corporate credit unions. CUNA Senior Vice President and Deputy General Counsel Mary Mitchell Dunn wrote that the board should permit credit unions to make golden parachute payments to former executives of insolvent or CAMEL 4 or 5 credit unions if the executive "was not involved in causing the loss."
She added that the proposal "stakes out a much greater role for the agency in corporate governance issues than it currently assumes."
NAFCU Senior Counsel and Director of Regulatory Affairs Carrie Hunt wrote that in light of the difficult financial conditions of many credit unions "the mere existence of the rule would detract their ability to attract competent personnel. Thus the rule may potentially be harmful for credit unions."
She also noted that the proposal doesn't differentiate among the different kinds of problem credit unions.
Hunt wrote that a "credit union that is barely undercapitalized because large amounts of deposits decrease its net worth ratio is not in comparable condition to an insolvent credit unions and should not be treated as such."
The NCUA defines golden parachutes as payments that are "contingent on the termination of that person's employment and received when the credit union making the payment is troubled, capitalized or insolvent."
The proposed rule would also prohibit any federally insured credit union, regardless of its financial health, from paying legal or professional expenses incurred in federal or state administrative proceedings that result in a monetary punishment, cease and desist order or removal from office.
Dunn wrote that CUNA's major concerns about the proposed restrictions on paying legal expenses?or indemnifications?include the potential financial burden on credit union executives, including those eventually exonerated, who would have to pay their legal expenses; and the lack of safeguards preventing the agency from blocking indemnification payments because its examiners don't accept a board's determination that the individual acted in good faith.
Hunt raised similar concerns and also recommended that the agency clarify the section banning payments that would "materially adversely affect the credit union's safety and soundness." She expressed concern that "materially adversely," could "be interpreted in many ways, which is not desirable in any situation, but especially in the context of determining effect on the safety and soundness of a credit union."
NASCUS Senior Vice President Brian Knight wrote that his group agreed with the regulations but urged the agency to clarify the rule's preamble to note the role of state regulators in monitoring the activities of state-chartered credit unions in these areas.