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Comment on NCUA compensation proposal sought
WASHINGTON (4/15/11)--The Credit Union National Association (CUNA) has reached out to credit unions, asking them to comment on a proposed rule that seeks to ensure that financial institutions account for risk when they design their individual incentive-based compensation arrangements, such as bonuses or commissions. Credit unions and other financial institutions with $1 billion or more in assets would be required to ensure that their incentive-based compensation arrangements "appropriately balance risk and financial rewards," are "compatible with effective controls and risk management," and are "supported by strong corporate governance," according to the proposal. The Dodd-Frank Act defines incentive-based compensation to mean any variable compensation, in any form, that serves as an incentive for performance. The proposal states that “generally, compensation that is awarded solely for, and the payment of which is solely tied to, continued employment (e.g., salary) would not be considered incentive-based compensation.” The compensation proposal does not cover salaries or other compensation, such as bonuses, where risk is not involved. Credit unions with $10 billion or more in total assets would be forced to comply with additional requirements. The proposed rule was jointly issued by the NCUA, the Federal Reserve, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Securities and Exchange Commission. The proposed provisions would be effective six months after publication of the final rule in the Federal Register, with annual reports due within 90 days of the end of a credit union’s fiscal year. CUNA in the comment call asks if this planned six-month effective date delay gives impacted credit unions enough time to comply with the proposed rules. CUNA has also asked if the proposed definition of “compensation” for credit unions, which differs slightly from the definition applied to other institutions, should be changed. Comments are due to CUNA by May 16. Comments solicited by the NCUA should be submitted by May 31. For the full comment call, use the resource link.

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