While some credit union industry leaders contend that the NCUA’s proposed rules to limit incentive-based compensation plans are too restrictive, several labor unions and consumer groups want them to be even tougher.
Although most of the practices that are addressed in comment letters don’t apply to practices at credit unions, they represent the views of liberal groups, whose members are strong supporters of the Democratic Party and President Obama.
The groups call for expanding the three-year mandatory deferral of some of the compensation to five years.
Under the three-year deferral only one-sixth of executives’ pay would be at risk for the full period and this doesn’t create adequate risk exposure, according to a comment letter from Americans for Financial Reform,, a coalition of 250 national, state and local organizations.
Similar points were raised in letters from the AFL-CIO and the American Federation of State, County and Municipal Employees (AFSCME).
This change is needed to “ensure that incentive compensation takes into account an institution’s performance over an entire business cycle and to prevent opportunities for gaming the payouts,’’ wrote Daniel F. Pedrotty, the AFL-CIO’s Investment Office director.
AFSCME President Gerald McEntee urged financial regulators to require specific structural data from covered institutions to allow the regulators to perform data aggregation and analysis about an institution’s compensation arrangements. The other letters also emphasized the importance of requiring more data.
McEntee also urged the agencies look at the data of well-paid employees who aren’t necessarily executives if their pay packages have incentive-based provisions.
Though not relevant for credit unions, Pedrotty urged federal regulators to prohibit all stock options as a form of compensation because they “permit executives to inappropriately profit from share price volatility without creating additional value.’’
None of the letters specifically dealt with credit unions and the letter from the Americans for Financial Reform was the only one addressed to the NCUA.
The AFL-CIO and AFSCME sent the NCUA copies of letters it had sent to other financial regulators.
Under the proposed regulation, large credit unions would have to file annual reports on incentive-based compensation programs and couldn't have any programs that encourage exposure to inappropriate risks.
Credit unions with $1 billion or more in assets couldn’t have programs that might lead to material loss and have to document their compliance procedures. Credit unions with assets of $10 billion or more would have to meet all those requirements and defer at least 50% of their incentive-based compensation for at least three years and adjust payments to reflect subsequent losses.
The rules must be issued by all financial regulators as a result of the financial overhaul bill passed last year.