ARLINGTON, Va.—NAFCU and CUNA have sent comment letters with feedback on NCUA's rules on compensation related to lending.
The NCUA in April issued an advanced notice of proposed rulemaking seeking public feedback on proposed changes.
In its letter, NAFCU is asking that the agency explicitly permit lending as a factor in compensation plans.
"NAFCU proposes several amendments to carry out the NCUA's intent while allowing credit unions the flexibility necessary to implement compensation plans that work best for their unique business models, including redefining 'overall financial performance' to include loan growth as part of the calculation," wrote NAFCU Regulatory Affairs Counsel Mahlet Makonnen. "Modernizing these regulations is critical for credit unions' governance because it will allow them to build well-balanced incentive plans that attract and retain talented employees and executives to help credit unions grow and better serve their communities."
The Suggestions
Suggestions outlined in the letter include:
- Modernizing section 701.21 (C)(8)
- Flexibility to develop methodology for compensation plans
Makonnen also noted that while current regulations contain NAFCU-supported protections against conflicts of interest and also establish a framework to prevent loss to the National Credit Union Share Insurance Fund, "the compensation rule could be substantially improved by the recommendations below to incorporate lending as part of a broad and balanced set of organizational goals and performance measures."
CUNA Comment
Meanwhile, in its comment letter, CUNA said it supports the overall intent of the regulation but also wants to see changes it said are needed to remain competitive with credit unions’ banking counterparts. The letter outlines requested changes to the regulation which would allow additional compensation to senior executives is appropriate, so long as there is an appropriate balance that incorporates sufficient risk management.
The letter addresses two primary issues, according to CUNA:
* The need for clarification on the term “overall financial performance.” The regulation permits a bonus to a credit union employee in connection with a loan if the bonus is based on the credit union’s “overall financial performance.” Credit unions have expressed confusion on what factors can be considered when assessing the credit union’s “overall financial performance.”
* The current differences between credit union and bank compensation. Based on CUNA research, bank CEO compensation packages consist of a significantly larger percentage of performance-based compensation: approximately 24% of bank CEO compensation is variable (bonus, stocks, and options) versus only 8% at credit unions. Further, the vast majority of small credit unions do not offer any type of bonus, CUNA said.