A proposal to allow incentive pay for loan officers is separating the industry's traditionalists from its more competitive-minded Young Turks.
Opponents of the National Credit Union Administration plan argue that the incentives could tempt officials to make poor loans. Further, the bonuses could damage cooperation among employees and encourage officers to push products that members don't need.
"I think greed and human nature have a long and sordid track record," said Jim Blaine, chief executive of State Employees Credit Union, Raleigh, N.C. The NCUA shouldn't "unleash that beast in credit unions."
"I guess I'm an old maid," said the chief executive of the country's second-largest credit union.
But supporters claim that incentives make and attract better employees and are necessary in the modern financial services industry.
"We have found that modest initiatives provide an additional source of motivation," said Lindsay Alexander, chief executive of National Institutes of Health Federal Credit Union. "We have found that marketing programs with incentives are more successful than ones without."
Current regulations ban people involved with approving a loan from receiving incentive pay connected to that loan. Other bonus programs are acceptable, such as those that reward employees for the institution's overall financial performance.
Under the proposal, loan underwriters and collectors would be allowed to receive incentive pay connected to loans, as long as the supervisor with final say on the loan doesn't receive a commission. But incentives can't be based on the number or dollar amount of loans generated.
The credit unions also must establish written policies, procedures, and internal controls for any payment of incentives.
The comment period for the proposal, issued last month, ends June 19.
Although the NCUA is responding to industry calls for liberalization and clarification of its incentive regulations, the preamble to the proposal indicates that the agency shares some of the old guard's concerns.
"Despite misgivings about incentive pay, the board recognizes the strong arguments made by many commenters that if incentive pay can be offered in a manner that protects against abuses, the decision whether to do so should be a management decision," the proposal states.
Among other agencies, the Office of Thrift Supervision bans certain employees from receiving incentives related to loans, and a 1979 opinion letter by the Office of the Comptroller of the Currency said such programs should be devised carefully.
Don Percy, chief executive of University of Wisconsin Credit Union, said greater latitude could allow him to better reward mortgage lenders. Mr. Percy is trying to make the Badger State's largest credit union a player in Madison's real estate market, and his competitors reward their employees with commissions.
"To be competitive with staff, primarily in mortgages, we may make incentives available," he said. "We would have them primarily, if not exclusively, in the mortgage area."
Xerox Federal Credit Union has had an incentive program for individuals and departments in place for a decade. Chief executive Kevin Foster-Keddie said the result has been increased productivity and reduced operating expenses.
"People aren't just watching the clock; they're looking for opportunities," Mr. Foster-Keddie said.
He also pooh-poohed concerns that incentives could lead to risky loans or greedy employees foisting products on gullible members.
"I've never seen a case where the plan caused a member or a credit union any harm," he said.
But Gene Johnson, chief executive of Eli Lilly Federal Credit Union, Indianapolis, said incentives undermine the cooperative nature of credit unions and could hurt morale.
"I'm not in favor of incentives that reward just one individual," he said. "The whole organization has to work together to generate loans."
