The NCUA proposed rule on executive compensation is unclear and raises serious questions about its scope, NASCUS said.
"We believe there is a role for regulators in ensuring such compensation plans are consistent with principles of safety and soundness," Brian Knight, NASCUS's executive vice president and general counsel said in a letter to the agency. "However, regulatory authority related to compensation in the marketplace should be exercised judiciously."
All financial regulators were required to issue compensation rules under the Dodd-Frank Act , which was mandated by Dodd-Frank, all financial regulators were required to issue, prohibits incentive-based compensation arrangements that would encourage inappropriate risks by providing excessive compensation or that could lead to material financial loss. Affected institutions will be required to annually create and retain records documenting the structure of incentive-based compensation arrangements for seven years. Further, the proposal requires board members to provide direct oversight of compensation, including approval of all senior executive compensation plans and any material adjustments.
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It will apply to all financial institutions, including credit unions, with total assets of $1 billion or more. It is estimated that it will impact only a small percentage of credit unions – a total of 258, or nearly 5% of all credit unions.
The comment period on the proposed rule closed on July 22 and many credit unions told NCUA that it should not apply to credit unions.
NASCUS said that Congress left financial regulators the option to address the issue through regulation or guidance, adding that NCUA should have considered using guidance to set the standards.
NASCUS said that NCUA must clarify whether it is interpreting the Dodd Frank requirement to apply to non-federally insured credit unions.
The rules can be interpreted to apply to all credit unions, NASCUS said. "We do not believe this was NCUA's intent," Knight wrote. "NCUA should amend the provision to explicitly clarify that the rules apply only to federally insured credit unions."
NASCUS concluded its comments, saying that the proposed approach is reasonable. However, the association called for additional collaboration with stakeholders. "We encourage NCUA to work with stakeholders during the revision process to ensure currently unforeseen consequences on implementation are identified, evaluated, and mitigated," Knight wrote.
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