NCUA on Incentive -Based Compensation
National
Credit Union Administration
Proposed
Rule on Incentive-Based Compensation Arrangements
Thursday,
April 21, 2016
Key
Topics & Takeaways
-
Unanimous Approval: The
motion to publish the proposed
rule on incentive-based compensation was unanimously approved by the
National Credit Union Administration (NCUA) Board. Comments are due by July 22,
2016.
- Grandfathering
Provisions: Staff explained that the proposed rule
grandfathers in existing compensation arrangements, and will not be applied
retroactively.
- Initial Concerns:
NCUA’s McWatters voiced a number of concerns about the proposed rule, such as
that it may: (i) not be necessary, as the issue could have been addressed
through supervisory guidelines instead of rulemaking; (ii) create opportunities
for examiners to “micromanage” the compensation practices of covered
institutions; and (iii) be ambiguous in its definitions of covered executives
and material risk takers. He added that it is “critical” to acknowledge that credit
unions were not the “perpetrator” of the financial crisis and argued that it
seems “entirely appropriate” that the rule apply only to “too-big-to-fail”
institutions.
Speakers
-
Lara Rodriguez,
Deputy General Counsel, Office of General Counsel
- Tim Segerson, Deputy
Director, Office of Examination and Insurance
- Debbie Matz, Chair
- Mark McWatters,
Board Member
- Rick Metsger, Vice
Chairman
National Credit Union Administration (NCUA) Staff Presentation
Lara Rodriguez, Deputy General Counsel,
Office of General Counsel
Rodriguez
explained that Section 956 of the Dodd-Frank Act requires the NCUA and five
other agencies to promulgate rules with respect to incentive-based compensation
practices at certain covered financial institutions. She recalled that the
initial rule proposed in 2011 received more than 10,000 comments from a wide
array of stakeholders. NCUA staff explained that the proposed rule prohibits
incentive-based compensation that provides “excessive compensation” or could
lead to “material losses.” She also argued that the rule does not take a
“one-size-fits-all” approach since it is based on a tiered structure, by which
the largest Level 1 institutions (with $250 billion in assets) would be subject
to the most stringent requirements, followed by Level 2 institutions (with $50
billion in assets) and then Level 3 institutions (with $1 billion in assets).
Accordingly, she explained that the regulators expect institutions to tailor
the rule to the size, complexity, risk tolerance and business strategy of that
institution. Rodriguez added that the proposed rule would require boards of
directors (or a committee thereof) to conduct oversight of compensation
arrangements for senior executives, as well as introduce recordkeeping
requirements.
Tim Segerson, Deputy Director, Office of
Examination and Insurance
Segerson
noted that the proposed rule introduces enhanced disclosure and recordkeeping
requirements, as well as forfeiture and clawback provisions. He also
explained that the rule gives the NCUA the authority to apply more rigorous
standards to some small Level 3 institutions if they have certain operational
complexities. Finally, Segerson noted that the proposed rule offers a
“lengthy” implementation timeline of 18 months and grandfathers in existing
compensation arrangements.
Board Consideration
Matz
noted
that this re-proposed rule has been a “long time coming” and explained that it
was difficult for staff to design a “focused and fair” rule on such a
“controversial issue.” Matz recognized that the interagency rule will not
affect the vast majority of credit unions (96 percent would be exempt), and
that the rule would take into account the unique tax status of credit
unions. She also explained that the rule does not apply retroactively,
since it grandfathers in existing compensation plans currently in place. Matz
closed by stating that the joint regulatory agencies responded to stakeholder
comments received on the initial proposal and “made many significant changes.”
In
response to a question from Matz, Segerson explained that the NCUA will develop
guidance to direct supervisors and industry participants on how to comply with
the rule, once it is finalized. He also clarified that the recordkeeping
and examination requirements do not require firms to report the specific amount
of any individual’s compensation level.
While
he recognized that the agency is required to issue rules on incentive-based
compensation under Sec. 956, McWatters lamented that the NCUA Board Members
received no interim reports on how the proposal was changing since the initial
draft in 2011. He urged his fellow Board Members to allow more time to
consider the rule proposal before “rush[ing]” to a vote.
McWatters
stated that it is “critical” to acknowledge that credit unions were not the
“perpetrator” of the financial crisis and argued that it seems “entirely
appropriate” that the rule apply only to “too-big-to-fail” institutions.
Metsger
noted that Congress and the American people want senior executives to be held
accountable if their profit-seeking efforts result in material financial
losses. He noted the failure of a credit union in California and explained that
its incentive compensation program was “one of two factors” that contributed to
its demise. Metsger added that the proposed rule is “probably not perfect.”
The
motion to publish the proposed rule on incentive-based compensation was
unanimously approved by the NCUA Board. Comments are due by July 22, 2016.
,Blog Tags:,Blog Categories:,Blog TrackBack:,Blog Pingback:No,Hearing Summaries Issues:Capital/Resolution Authority/SIFIs,Hearing Summaries Agency:Special Event,Publish Year:2016
National
Credit Union Administration
Proposed
Rule on Incentive-Based Compensation Arrangements
Thursday,
April 21, 2016
Key
Topics & Takeaways
-
Unanimous Approval: The
motion to publish the proposed
rule on incentive-based compensation was unanimously approved by the
National Credit Union Administration (NCUA) Board. Comments are due by July 22,
2016.
- Grandfathering
Provisions: Staff explained that the proposed rule
grandfathers in existing compensation arrangements, and will not be applied
retroactively.
- Initial Concerns:
NCUA’s McWatters voiced a number of concerns about the proposed rule, such as
that it may: (i) not be necessary, as the issue could have been addressed
through supervisory guidelines instead of rulemaking; (ii) create opportunities
for examiners to “micromanage” the compensation practices of covered
institutions; and (iii) be ambiguous in its definitions of covered executives
and material risk takers. He added that it is “critical” to acknowledge that credit
unions were not the “perpetrator” of the financial crisis and argued that it
seems “entirely appropriate” that the rule apply only to “too-big-to-fail”
institutions.
Speakers
-
Lara Rodriguez,
Deputy General Counsel, Office of General Counsel
- Tim Segerson, Deputy
Director, Office of Examination and Insurance
- Debbie Matz, Chair
- Mark McWatters,
Board Member
- Rick Metsger, Vice
Chairman
National Credit Union Administration (NCUA) Staff Presentation
Lara Rodriguez, Deputy General Counsel,
Office of General Counsel
Rodriguez
explained that Section 956 of the Dodd-Frank Act requires the NCUA and five
other agencies to promulgate rules with respect to incentive-based compensation
practices at certain covered financial institutions. She recalled that the
initial rule proposed in 2011 received more than 10,000 comments from a wide
array of stakeholders. NCUA staff explained that the proposed rule prohibits
incentive-based compensation that provides “excessive compensation” or could
lead to “material losses.” She also argued that the rule does not take a
“one-size-fits-all” approach since it is based on a tiered structure, by which
the largest Level 1 institutions (with $250 billion in assets) would be subject
to the most stringent requirements, followed by Level 2 institutions (with $50
billion in assets) and then Level 3 institutions (with $1 billion in assets).
Accordingly, she explained that the regulators expect institutions to tailor
the rule to the size, complexity, risk tolerance and business strategy of that
institution. Rodriguez added that the proposed rule would require boards of
directors (or a committee thereof) to conduct oversight of compensation
arrangements for senior executives, as well as introduce recordkeeping
requirements.
Tim Segerson, Deputy Director, Office of
Examination and Insurance
Segerson
noted that the proposed rule introduces enhanced disclosure and recordkeeping
requirements, as well as forfeiture and clawback provisions. He also
explained that the rule gives the NCUA the authority to apply more rigorous
standards to some small Level 3 institutions if they have certain operational
complexities. Finally, Segerson noted that the proposed rule offers a
“lengthy” implementation timeline of 18 months and grandfathers in existing
compensation arrangements.
Board Consideration
Matz
noted
that this re-proposed rule has been a “long time coming” and explained that it
was difficult for staff to design a “focused and fair” rule on such a
“controversial issue.” Matz recognized that the interagency rule will not
affect the vast majority of credit unions (96 percent would be exempt), and
that the rule would take into account the unique tax status of credit
unions. She also explained that the rule does not apply retroactively,
since it grandfathers in existing compensation plans currently in place. Matz
closed by stating that the joint regulatory agencies responded to stakeholder
comments received on the initial proposal and “made many significant changes.”
In
response to a question from Matz, Segerson explained that the NCUA will develop
guidance to direct supervisors and industry participants on how to comply with
the rule, once it is finalized. He also clarified that the recordkeeping
and examination requirements do not require firms to report the specific amount
of any individual’s compensation level.
While
he recognized that the agency is required to issue rules on incentive-based
compensation under Sec. 956, McWatters lamented that the NCUA Board Members
received no interim reports on how the proposal was changing since the initial
draft in 2011. He urged his fellow Board Members to allow more time to
consider the rule proposal before “rush[ing]” to a vote.
McWatters
stated that it is “critical” to acknowledge that credit unions were not the
“perpetrator” of the financial crisis and argued that it seems “entirely
appropriate” that the rule apply only to “too-big-to-fail” institutions.
Metsger
noted that Congress and the American people want senior executives to be held
accountable if their profit-seeking efforts result in material financial
losses. He noted the failure of a credit union in California and explained that
its incentive compensation program was “one of two factors” that contributed to
its demise. Metsger added that the proposed rule is “probably not perfect.”
The
motion to publish the proposed rule on incentive-based compensation was
unanimously approved by the NCUA Board. Comments are due by July 22, 2016.