'Golden parachutes' would end for execs at low-ranked CUs

ALEXANDRIA, Va. (7/30/10)--The practice of providing so-called "golden parachutes" to departing executives would be prohibited for federally insured credit unions with CAMEL Codes 4 or 5 or in an otherwise troubled condition under a proposed rule approved by the National Credit Union Administration (NCUA) on Thursday. If finalized, the rules would not apply to current employment contracts, only to those that are agreed to or renewed after the rules take effect.

According to an NCUA release, the rule aims to safeguard the National Credit Union Share insurance fund (NCUSIF) by "preventing the wrongful or improper disposition" of credit union assets." The rule also seeks to "inhibit unwarranted rewards" for credit union executives that may have contributed to their credit unions financial troubles. The rule also provides credit unions with "greater clarity on the distinction between legitimate employee severance payments and improper golden parachute payments."

The prohibitions on "golden parachutes" will not apply to qualified pension plans, "bona fide" deferred compensation, and some other types of employee benefits and severance agreements. In addition, credit unions would be permitted to appeal to the NCUA for a waiver which would allow an otherwise prohibited "golden parachute" under certain circumstances, such as in connection to a supervisory merger.

Congress established the statutory basis for these rules in 1990, but the NCUA did not issue a proposed regulation on this issue at that time. The NCUA is also working on substantially identical rules for corporate credit unions, and NCUA board member Gigi Hyland said that a unified set of golden parachute prohibitions should be established once both sets of rules are adopted.

The status of troubled credit unions was also addressed during the NCUA's monthly report on the status of the NCUSIF and its Temporary Corporate Credit Union Stabilization Fund. During that presentation, NCUA Chief Financial Officer Mary Ann Woodson reported a slight increase in the number of CAMEL Code 4 and 5 credit unions, but noted a slight decrease in the percentage of total shares that are held in those troubled credit unions. According to Woodson, the .54 basis point decrease was due to an increase in total insured credit union shares as well as the positive progression of one credit union from CAMEL Code 4/5 status to CAMEL Code 3 status.

The distribution of total assets in CAMEL code credit unions held relatively steady, Woodson added.

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