Samantha: Hello, this is Samantha Shares.
This episode covers N C U Aâs new proposed rule on Proposed Rule Incentive
Based Compensation Arrangements voted on at the July 18th Board Meeting.
The proposed rule passed by a vote of 2 to 1.
The following is a word for word real audio of that item.
This podcast is educational and is not legal advice.
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And now the N C U A Board.
The second item of business today is Proposed Rule Incentive Based Compensation
Arrangements 12 CFR Parts 741 and 751.
Staff presenting are John Barry, Policy Officer, Office of Examination and
Insurance, and Ghira Bose, Senior Staff Attorney, Office of General Counsel.
Staff available for questions include Amanda Parkhill, Deputy Director,
Office of Examination and Insurance and Ariel Pereira, uh, Senior Staff
Attorney, Office of General Counsel.
Good morning, John and Kira, Amanda and Ariel, uh, John and Kira.
Uh, you may begin whenever you are ready.
Staff 2: Thank you, Chairman.
Good morning, everyone.
Chairman Harper, Vice Chairman Hopman, and Board Member Otsuka, we are here today to
present for your consideration a proposed rule entitled Incentive Based Compensation
Arrangements to fulfill NCUA's obligations under Section 956 of the Dodd Frank Wall
Street Reform and Consumer Protection Act.
Section 956 requires NCUA and five other agencies, the Federal Reserve Board,
Federal Deposit Office of the Comptroller of the Currency, Securities and Exchange
Commission, and Federal Housing Finance Agency to jointly prescribe regulations
or guidelines With respect to incentive based compensation practices at
certain covered financial institutions.
Specifically, Section 956 requires that the agencies Prohibit at types of
incentive based payment arrangement or any feature of any such arrangements.
that the regulators determine encourage inappropriate risks by
covered financial institutions.
One, by providing an executive officer, employee, director, or
principal shareholder of the covered financial institution with excessive
compensation, fees, or benefits.
Or two, that could lead to material financial loss to the
covered financial institution.
Section 956 does not apply to institutions with less than 1 billion in assets.
It does not require a financial institution that does not have an
incentive based payment arrangement to make the disclosures required
by Section 956, and it does not require the reporting of the actual
compensation of particular individuals.
To date, the agencies have issued two proposed rules.
One in 2011 and the second in 2016, neither of which were finalized.
This 2024 action is being taken by NCUA, FDIC, OCC, and FHFA.
It involves reissuing the 2016 proposal for public notice and
comment and requesting comment or input on alternatives that may be
incorporated into a final rule.
I'll now turn it over to John to discuss the proposal.
Staff 1: Thank you, Gera.
Good morning again, Chairman Harper, Vice Chairman Hoffman, and Board Member Otsuka.
I would like to briefly summarize the contents of this proposed rule.
The proposed rule identifies three levels of covered
institutions subject to the rule.
Level 1 institutions are those with assets equal to or greater than 250 billion.
Level 2 institutions are those with assets greater than or equal to 50
billion, but less than 250 billion.
And level 3 institutions are those with assets greater than or equal to 1 billion,
but less than 50 billion in assets.
At this time, there are 449 federally insured credit unions that would be
covered by this rule, with 447 being a level 3 and 2 being a level 2.
We would have no level 1 credit unions.
As noted earlier, this proposed rule prohibits, uh, incentive based
compensation plans that provide excessive compensation or could lead
to material loss at the credit union.
The proposed rule contains six factors for determining whether compensation
is excessive or unreasonable or disproportionate to the value of
services performed by a covered person.
These factors apply to institutions at all three levels.
The factors must be considered are the combined value of all compensation
and fees or benefits provided to the covered person, the compensation
history of the covered person and others with comparable expertise at the
credit union, the financial condition of the credit union, compensation
practices at comparable credit unions based on such factors as asset size.
geographic location, and the complexity of that credit union's operations, and for
post employment benefits, the projected total cost and benefit to the credit
union, and any connection that covered person, um, has with any fraudulent act
or remission, breach of trust, or insider abuse with regard to that credit union.
The proposed rule contains three key principles that must be considered
when determining if incentive based compensation, uh, plays poses a
material risk of loss to the crediting.
The principles applied to this institution at all three levels and include whether
the incentive based compensation arrangement appropriately balances
risk and financial reward, whether the incentive based compensation arrangement
is compatible with effective risk management and controls, and whether the
incentive based compensation arrangement is supported by effective governance.
With this proposal, the agencies expect that a covered institution would
tailor its incentive based compensation program to its size, complexity, risk
tolerance, business model and the business model of the institution consistent
with the previously listed factors.
The proposal requires that an institution's board of directors
or a committee thereof be directly involved in the oversight of the
incentive based compensation program.
Specifically, the Board of Directors, or the committee thereof, must approve
all incentive based compensation plans for senior executive officers, including
awards and payouts, and approve all material exceptions or adjustments to
plans covering senior executive officers.
The last core requirement of the proposed rule involves recordkeeping.
All covered institutions will have to document their incentive
based compensation plans.
Maintain them for seven years and provide them to the regulator
upon request at a minimum.
Records must include copies of all incentive based compensation plans,
a record of who is subject to the plan, and a description of how the
plan is consistent with effective risk management and controls.
The proposed rule applies additional, more rigorous prohibitions and requirements to
incentive-based compensation arrangements at level one and level two credit unions.
These enhanced requirements include coverage of individuals considered to
be significant risk takers, as well as the senior executive officers,
enhanced disclosure and record keeping requirements, deferral of a portion of
qualifying incentive based compensation in accordance with the rule, the
requirement that unvested deferred incentive based compensation be at risk
of downward adjustment or forfeiture under certain circumstances set forth
in the rule, and inclusion of clawback provisions in qualifying incentive
based compensation arrangements.
An independent risk management and control requirements, and
enhanced requirements relating to governance, policies, and procedures.
Finally, the rule provides an implementation timeline of 18 months.
It grandfathers existing plans for the life of those plans, and it also provides
an 18 month window for institutions newly subject to the rule to comply.
In other words, if a credit union surpasses 1 billion in total assets
at a later point in time, that credit union will be afforded the same 18
month period for implementing the required provisions of the rule.
This concludes our comments.
We are glad to answer any questions that you have.
Thank you.
Chairman Todd Harper: Thank you so much, Ghira and John, for your presentation
on this proposed rule to implement the incentive based compensation requirements
of Section 956 of the Dodd Frank Wall Street Reform and Consumer Protection Act.
More importantly, thank you for your work on the interagency team.
of federal regulators that developed this proposed rule.
And thank you Amanda and Ariel for being available to respond to
any questions that we may have.
I know that this is a complex topic.
In just three days, we will mark the 14th anniversary of the enactment
into law of the Dodd Frank Wall Street Reform and Consumer Protection Act.
And this September, we will mark the 16th anniversary of the
collapse of Lehman Brothers and AIG.
Both prominent events in the financial crisis and the
Great Recession that followed.
The Dodd Frank Act responded to those events and, among other things, called
upon financial regulators to act on the issue of incentive compensation
within nine months of enactment.
So it's an understatement to say that this rulemaking is long overdue.
It's actually an incomplete assignment about which lawmakers
frequently inquire of me at hearings.
They want to know when we are going to finish our homework.
For me, the time to act is now.
Specifically, Section 956 of the Dodd Frank Act requires federal financial
regulators, including the National Credit Union Administration, to
issue joint regulations or guidelines requiring disclosure and reporting
of incentive based compensation.
For senior executive officers and significant risk takers at
financial institutions with more than one billion dollars in assets.
It also requires us to establish a mechanism for deferring income
and clawing back improper gains resulting from excessive risk
taking when an institution fails.
As noted earlier, the proposed rule we are considering today is identical
to the proposed rule recently approved by the Federal Deposit Insurance
Corporation, the Federal Housing Finance Agency, and the Office of the
Comptroller of the Currency in May.
This rule also re proposes the regulatory text issued in June 2016 and seeks
public comment in the preamble on certain alternatives and questions.
As in 2016, the proposed rule would establish a three-tiered system for
covered, uh, financial institutions.
Level one would cover institutions with $250 billion or greater in assets.
Level two would cover those institutions between 50 billion
and 1 billion, um, $250 billion.
And level three would cover institutions between $1 billion
and $50 billion in assets.
From the perspective of federally insured credit unions, the proposed
rules impact is relatively small.
As of the end of the first quarter of 2024, there were no federally
insured credit unions in level 1, uh, as, uh, John noted in his remarks.
There were two credit unions that were level 2, uh, one had, uh, 50
some billion dollars and one was, uh, At 170 some billion dollars.
And then there were 440 some credit unions in level three.
As such the vast majority of credit unions, in fact, more
than 90 percent of credit unions would be exempt from this rule.
Critics of this proposed rule will say that it shouldn't apply to credit
unions, but the statute is clear.
The rule must apply to credit unions with 1 billion in assets or more.
Critics of the rule might also claim that credit unions were not responsible for the
financial crisis or the Great Recession.
The agency, however, cannot change what Congress required.
Credit unions with more than 1 billion in assets are covered by the law.
That point is clear.
Some may also claim that credit union compensation practices are different
from other financial providers.
That may largely be true, but there are clear examples of excessive incentive
based compensation contributing to the failures of consumer and
corporate credit unions nearly 16 years ago during the financial crisis.
A prime example of that is the failure of Cal State 9 Credit Union.
That failure cost the Share Insurance Fund more than 1 billion.
170 million.
Moreover, the material loss review of Cal State nine found that quote an
incentive compensation program that paid it nearly 400, 000 in bonuses to the
credit union's CFO between 2006 and 2007, based on net income generated by the
credit union's home equity loan program.
was one of two factors that contributed significantly to Cal State 9's
excessive concentration of assets and indirect home equity lines of credit
that eventually led to its demise.
In another example, Western Corporate Federal Credit Union pursued a strategy
of generating more interest income than would be available from deposits it held.
WestCorp used this income to pay high rates on its member certificates and
to generate increased net interest income to support operational expenses,
including providing substantial compensation increases for its executives.
Between 2002 and 2008, the total annual compensation for the leadership
team increased by an average of 88%.
These executives pocketed enormous profits while the corporate, uh,
corporate's members and ultimately the credit union system wore
the cost of Westcorp's failure.
To help avoid similar situations in the future, the NCOA is required by
Congress to issue a joint incentive based compensation regulation or guidelines
and that is what we are doing here today.
Some may also assert that we have learned our lessons and what happened
in 2008 cannot happen again in 2024.
For I wish that were true.
But it is not.
Just last year, we saw how excessive risk taking by certain banks
walked our financial markets.
As noted in the proposed rule, a report on the failure of Silicon Valley Bank,
for example, noted that the compensation packages of senior management were
tied to short term earnings and equity returns did not include risk metrics.
That same report concluded that the bank's managers had a financial
incentive to focus on short term profit.
Over sound risk management.
A consistent set of enforceable standards across financial regulators
would level the playing field, avoid regulatory arbitrage, and help ensure
that incentive-based compensation arrangements at covered financial
institutions are not excessive and do not lead to material financial losses.
Lastly, some may assert that in passing Section 9 56, Congress
allowed the agencies to issue joint guidelines instead of a rule.
That is correct, but guidelines are an imperfect solution in this
instance, as they are unenforceable.
We cannot cite guidelines in documents of resolution, and in the event
of future failures resulting from excessive greed, we will lack the
regulatory structure and authority needed to claw back excessive gains.
I know the need from these three reports.
for these reforms from first hand experience.
As part of my work in helping to draft the financial, this financial
reform provision, it was clear then, and it's clear now, that Congress
and the American people want senior executives, wrongdoers, and fat cats
at large financial institutions held accountable for any irresponsible
and damaging business practices.
Greedy executives should not earn excessive bonuses while
taxpayers foot the bill.
When their institutions fail.
This rulemaking effort is about providing transparency and accountability.
This regulatory effort will better focus the leaders of financial firms on the
long term health of the company instead of just their short term personal gain.
That's good for the credit union system, it's good for our financial markets, and
it's good for the share insurance fund.
For these reasons, I strongly support this proposed rule.
That concludes my remarks.
I now recognize the Vice Chairman.
Vice Chairman Kyle Hauptman: You bet.
Uh, thanks for the presentation.
Uh, quite a bit of effort.
Uh, can I ask this, for here, how many folks were involved
in general in preparing for this, uh, presentation today?
Yeah, I can answer that.
For the board meeting?
Staff 1: Um, for the board meeting, well, there's, there were, uh, four individuals
that were involved, um, in the, in the interagency meetings and in assisting
with the development of the rule.
Uh, three, uh, three from the Office of General Counsel and one from, uh, the
Office of Examination and Insurance.
And then our work was subject to higher level supervisory reviews.
Well, for the board meeting
Vice Chairman Kyle Hauptman: specifically, not just the rule itself.
The same, same individual.
Same group.
I remember when I had a briefing on this there were 11 staff members, uh, besides
my staff, there were 11 on the call.
Um, I say that because I want to note
that work for this meeting could have been avoided.
I offered to address this item via notation vote.
If my colleagues would support halting the publication of each credit union's,
uh, total income from overdraft and NSF fees, with their quick name
of the credit union next to it.
I suggest that NCA examiners could still have access to that data, and
we could publish various forms of aggregate data, you know, 20th and
80th percentiles, that sort of thing.
Uh, my suggestion was rejected, all to maintain a policy that still, as of
today, lacks any legitimate justification.
As you might expect, law firms are already positioning themselves
to extract more settlements.
from the institutions we insure, which is a very odd thing for NCUA to promote.
Uh, to today's rule on incentive compensation.
Um, I can't support it because it exceeds what Congress mandated and does
so in an intrusive and harmful manner.
There was a better way to do this.
I want to quote FDIC Vice Chairman Travis Hill, who already
voted against this same rule.
Proposed rule, as his comments echo my own, begin quote, In 2010, the banking
agencies issued guidance and adopted a principles based approach to help ensure
that incentive compensation policies do not encourage imprudent risk taking.
Notably, the 2010 guidance asserted that a principles based approach is the
most effective way to address incentive compensation practices, given the
differences in the size and complexity of banking organizations covered by the
guidance and the complexity, diversity, and range of Incentive compensation
arrangements by those organizations.
The guidance established as expectations that incentive comp would balance risk
and financial results in a manner that does not encourage employees to expose
their organizations, to imprudent risk, and have provided different options
that banks can use to make compensation more sensitive to risk overall.
Implementation of the 2010 guidance along with other supervisory engagements
around that time contributed to meaningful change in incentive
compensation practices across the industry, and the incentive compensation
arrangements that were cited by some as a factor in the financial crisis
are far less common today, end quote.
One of the reasons, if you notice, the dates of that 2010 guidance
was the agencies, including this one, were, uh, trying to head off
Congress mandating something clunkier.
Congress did at least, we can't say guidelines, we didn't have to do a rule.
Um, the agencies, including NCUA, could have used that guidance as the
foundation for a six agency effort to satisfy Congress directives.
Let me ask you this, if we compare this proposed rule today, To the principles
based approach in the 2010 guidance, which method is likely to create
more opportunities for enforcement
Staff 1: actions?
Thank you, Mr.
Vice Chair.
I can answer that.
Um, so just as initially I would just note that, um, the NCUA was
not a party to the 2010 guidelines.
It was the banking
Vice Chairman Kyle Hauptman: regulators.
That's right.
The other banking agencies.
I want to correct my remark.
It was the banking agencies on that.
Staff 1: But to, but to answer your question, um, in general, guidelines
or the standards set by guidelines are not directly enforceable, uh,
whereas those contained in a rule are.
So, by the fact that this is a proposed rule, um, and if it's
finalized, it would establish binding requirements, uh, the rule, the final
rule would be enforceable in a way that, that the guidelines are not.
Vice Chairman Kyle Hauptman: Well, obviously rules are important.
Uh, can create enforcement actions in a way that guidance doesn't, but
particularly going from a principles based approach, uh, to this one with a lot
more paperwork has to be done correctly.
Remember, you can get dinged just for not doing the paperwork right, uh,
regardless of any actual harm done.
But if you, put it this way, if you are one of the agencies on this and you wanted
all else equal enforcement actions, You wanted the press releases, you wanted
to report the dollar amount collected.
Which approach would yield more, uh, number of enforcement
actions and dollar amount?
The principal's 2010 approach or this prescriptive
Staff 1: rule today?
It's hard to say, Mr.
Vice Chair.
Um, you know, the fact that we weren't part of the 2010 guidelines,
I mean, we haven't No, I'm not asking
Vice Chairman Kyle Hauptman: whether you were part of it or not, but we know they
exist and we know they significantly reduce the type of incentive comp that
some say contribute to the crisis.
Staff 1: It, it can vary.
Sometimes a principles based approach can, can lead to less enforcement
actions, but sometimes it's just by their very nature, principles based can be,
uh, less specific, um, and so they're much more open to subjectivity and
interpretation, and so it's hard to say.
Uh, without looking at the specifics and doing that sort of side by side
comparison, um, it's hard to say that one necessarily would lead to less
enforcement actions than, than another.
Vice Chairman Kyle Hauptman: I would say the history of, uh, financial regulation,
especially from non insurers is the more rules and the more prescriptive they are,
the number of enforcement actions goes up.
What I'm getting at is the incentive problem here.
Government agencies face incentives and we're not examining those today
and I'll talk about that in a minute.
Uh, we're not mandated by Congress either.
But it doesn't mean it's not something to think about.
The incentive to have enforcement actions.
If you don't have profit, it's power, publicity, prestige, and in some agencies,
post employment job opportunities.
The harsher your enforcement actions, and the harder it is to follow, the higher
the market value for former regulators.
I would say that if you look at, in the long run, you can predict exactly
what agencies do if you look at those incentives in front of them.
So we have an incentive problem here that is, I think, harming the American public.
Um, um, Uh, let me go back to this.
There's unnecessary language about extending these burdensome requirements to
credit union service organizations, CUSOs, question, did Congress mandate that?
Staff 2: I can take that question.
No, Congress does not mandate that the rule or regulations or guidelines or
however the want to implement the statute applied to QCIS, but what Congress does
say is that the agencies should decide, they have discretion to apply the rule to
any other financial institution that they determine should be treated as a covered
financial institution under the rule.
And to be clear, QSOs are not included under this rule.
As covered financial institutions.
Vice Chairman Kyle Hauptman: Software providers are not considered.
Because if you consider them financial institutions, then boy,
there's a whole lot of financial institutions in this country.
Staff 2: Financially insured credit unions would be regulated under this proposal.
Vice Chairman Kyle Hauptman: Right.
But, uh, it mentions credit union service organizations and we are not there.
Staff 2: And they're not covered under this rule.
Vice Chairman Kyle Hauptman: Uh, but there is language, the word QSO is in there.
Staff 2: You cannot do through a CUSO or any other entity, if you are
a credit union, what you cannot do directly under this rule, so there
is an anti evasion provision, and I think you may also be getting at
the fact that there is a question in the preamble with regard to CUSOs.
It's a long standing question.
A similar question was also asked back in 2011, and that's an opportunity for the
agency to get feedback on CUSOs and to
Vice Chairman Kyle Hauptman: But the, the
Staff 2: word
Vice Chairman Kyle Hauptman: credit union service organization is not in.
No,
Staff 2: it's not.
And it's not in the regulation either.
Vice Chairman Kyle Hauptman: Um, I asked our staff to eat our own cooking here.
Because remember, we can't say we're here to do this.
Well, Congress mandated it.
No, they did.
But we know there's other ways to do it.
When this agency and the other agencies are party to it.
And by the way, this will not become law probably anytime, while I'm here.
Because the Fed opposes it.
Uh, hasn't not approved it yet.
Flat out opposes it that's why this is not going to go in a federal register
since we went well beyond what Congress said We can't complain
that it's too burdensome.
I asked the staff to eat our own cooking I said let's put ourselves
in the in the shoes of a large credit union and Mock it up.
See what you would do, right?
How long does it take?
You know, etc I've large credit union have to comply with this and actually
write up what you expect them to report to us just to get a Handle on it right
remember no one on earth understands this more and, and doesn't have to interpret
it more than the people who wrote it.
They're the only people as of today that actually have to know
exactly how to do it, right?
We don't have to interpret it.
There are words.
So this should be the easiest possible thing, right?
Uh, the only people who know exactly what it means, no interpretation, no
guidelines, and don't actually have to get in trouble for doing it since it was
just an exercise, uh, for doing it poorly.
Um, I think it's crucial for government to understand what it demands of others.
I've said it before, the only people who think compliance is easy are
the people who don't have to do it.
Here's what I received after some time was spent in this exercise.
Altogether, this exercise took three team members approximately
20 hours to complete, including drafting, revising, and clearing
the materials for one employee.
Creating the initial template for the annual incentive based
compensation plan for the CEO It took three hours and completing the
annual review took one hour, which we believe is accurate for similar.
This is for one human being.
And remember, we're the ones who know the rules the best.
We wrote it.
Zero interpretation needed on it.
So that's quite a bit of time and effort.
And it doesn't even include the stress level associated with you actually
having to submit it to your regulator.
Finally, the incentives for regulators need examination.
I've mentioned this before.
In the long run, the agencies will act according to its incentives.
Those incentives, in the absence of a profit motive, are power, publicity,
prestige, and at some agencies, are post regulator job opportunities.
The harder the regulations are to comply with, and the harsher the
enforcement, the higher the market value is for former regulators.
Government agencies should examine their own incentives and ensure they
align with that of the American public.
I would extend the same thing to government as a whole, not just agencies.
Since political interference in the housing market was a leading cause of
the crisis, people got political benefits for themselves, forcing everyone in this
room to back over half of the subprime mortgages that existed via government
entities, whether we asked for him or not.
They got benefits for themselves, and the rest of us paid the cost.
Government interference in the housing market was key, and that is
an incentive issue that some might consider important, uh, as well.
That concludes my remarks.
Chairman Todd Harper: Thank you so much.
Thank you so much, Board Member Otsuka.
Board Member Tanya Otsuka: Thank you.
Um, thank you to the staff for your presentation and
all your work on this rule.
Um, I really appreciate it.
Finalizing this rule is a long time coming.
As Chair Harper noted, this Sunday marks the 14th anniversary of the
passage of the Dodd Frank Act.
In other words, um, for over a decade, the financial, uh, federal
financial regulators have failed to implement this crucial regulatory
tool that Congress passed.
Specifically tasked us with doing.
Hopefully we are on the way to changing this as the NCAA joins the FHFA, OCC
and FDIC in re proposing this role.
Today, I urge our colleagues at the sec and the federal reserve to do the same
as many of you have heard me say, it.
Two of the defining moments of my career were working in the aftermath
of the global financial crisis and dealing with the failure of Silicon
Valley Bank and, uh, the other two banks that failed that spring.
In both cases, we saw bank CEOs get paid millions as their banks
failed, often in the form of bonuses or incentive based pay.
If your institution fails on your watch and you still receive your incentive
based pay, I am not sure what exactly you're being incentivized to do.
At the time of its collapse, SVB had the Uh, over 30
unresolved supervisory warnings.
Still, its CEO, Greg Becker, received a 1.
5 million bonus as part of his 2022 compensation package that was
worth about 10 million in total.
Many of us also vividly remember when Wall Street CEOs still got their bonuses
even as their companies needed billions of dollars of taxpayer, excuse me, billions
of taxpayer rescue dollars to stop them leaving during the financial crisis.
We, as regulators, need to be able to ensure that incentive based pay Actually
incentivizes prudent management and aligns with safe and sound banking practices.
In the credit union space, we are seeing both a rise in total
executive pay and incentive-based pay data from the 2023 EQs.
Executive Compensation survey show that executive pay among credit
unions has increased on average by 8% from the previous year.
Industry experts have noted that historically, credit union CEO
pay grew annually by three to 4%.
The survey also showed that bonuses account for 20 to 25
percent of the total compensation for executives at credit unions.
Another industry survey published in 2022 showed that 25 percent of CEOs at
credit unions with over a billion dollars in assets received long term incentives
from just 10 percent of CEOs in 2017.
And the number of credit unions with assets equal to or greater than a
billion are increasing at a steady rate.
Between the year 2000 and March of this year, the U.
S.
has gone from having 43 credit unions with over a billion in assets to 443.
In the last five years alone, we have seen 133 credit unions across the U.
S.
Uh, excuse me, across the one billion dollar asset mark.
Given these trends, it makes perfect sense that the rule would only apply to
the largest credit unions, those with a billion dollars in assets or more.
These are not necessarily small credit unions with just a handful
of employees and volunteers.
Frankly, the leadership at many very small credit unions are
probably not getting paid enough.
This rule would apply to some of the most complex credit unions whose mismanagement
or failure could send shockwaves through the entire credit union system.
And, you know, this, we are not just required to do this, uh, rule.
The reason we're not, we're doing this rule is not just because
Congress required us to do it.
It is because we do have a duty to protect the share insurance fund.
And, uh, We need to, we need to issue rules, not because we are worried
that institutions might get dinged or might have to do more paperwork.
Those are considerations, but it is important for us as a regulator and
insurer to have enforceable rules that protect the share insurance fund.
It's good for the system and it's good for the American people and taxpayers.
This coincides, this rulemaking coincides with the fact that we are
experiencing a wave of retirements in our leadership ranks among credit
unions and those credit unions need to be able to attract and retain talent.
Offering incentive based pay is one way to do so and in that sense it
is fitting that we're voting on both the succession planning and incentive
based pay proposal today as both rules provide additional stewardship as our
credit union system continues to grow.
To that end, the proposed rule aims to put more safeguards in place
to ensure incentive based pay is aligned with the proper incentives,
such as sound governance practices and risk management controls.
It includes prohibitions intended to make these compensation arrangements
more sensitive to risk, such as banning incentive pay that does
not include risk adjustment of awards, deferral of payments, and
forfeiture and clawback provisions.
These provisions would help Safeguard credit unions from the types
and features of incentive-based compensation arrangements that
encourage inappropriate risks.
We want credit union management to be adequately compensated and be
able to attract and retain talent.
I do think that's important.
I think it's important for leaders of financial institutions, including credit.
To be adequately compensated for what are very hard and increasingly complex jobs.
That however, is, excuse me, however, it is our job as a regulator to
ensure that credit unions are doing that in a prudent way to protect
our system of cooperative credit.
So for these reasons, I strongly support the re proposal and I really thank staff
for all the hard work that went into it.
Chairman Todd Harper: Thank you very much.
Um, board member ska, is there a motion.
Board Member Tanya Otsuka: I move that the board approve proposed
rule incentive based compensation arrangements 12 CFR parts 741 and
751 for a 60 day comment period as attached to the board action memorandum.
Chairman Todd Harper: Is there a second?
Hearing none, I second the motion.
All those in favor say aye.
Aye.
All those opposed say nay.
Nay.
The ayes have it and let the record show that the motion passes 2 to 1.
Samantha: This concludes this item.
If your Credit union could use assistance with your exam, reach out to Mark Treichel
on LinkedIn, or at mark Treichel dot com.
This is Samantha Shares and we Thank you for listening.