ALEXANDRIA, Va. – The main credit union lobby groups are calling on NCUA to withdraw a proposal that would severally limit executive severance payments, know as Golden Parachutes, for managers at troubled credit unions, saying the NCUA proposal is too subjective.
“NAFCU believes that the proposed rule is too broad and vague because it seeks to brand together all credit unions that are insolvent, undercapitalized, in conservatorship, rated CAMEL 4 or 5, subject to proceeding to terminate or suspend its share insurance, or in otherwise troubled condition,” Carrie Hunt, chief of regulatory compliance for the trade group.
“We also believe that the proposed rule does not clearly address the situation where the contract for payment was agreed to while the credit union is not in any of the conditions described in the proposed rule,” write Hunt.
The Golden Parachute proposal, similar to one adopted for corporate credit unions last year, would bar credit unions from entering into lucrative retirement agreements with executives who may have contributed to the condition of a credit union that has failed, been conserved, is undercapitalized or has been rated either CAMEL 4 or 5.
The proposal would exempt existing agreements on "nondiscriminatory" severance packages. That means executives who may have helped cause big losses would still be able to keep long-time retirement packages they have already earned, such as the $6 million severance package awarded WesCorp FCU CEO Robert Siravo prior to when NCUA took over the failed corporate last year.
The proposal comes amid growing concerns that some executives that have overseen the failures of their credit union are walking away with secret multi-million dollar severance deals after they engineer mergers of their credit unions into healthy institutions. Executives brought in to engineer such deals would be exempted from the new prohibition.
Roshara Holub, president of the Missouri CU Association, said Golden Parachute agreements have a positive effect in assuring that credit unions are able to attract, motivate and retain important executives. “Key components in assessing appropriate, or inappropriate compensation and indemnification payments are knowledge and willful intent with actions absent good faith,” wrote Holub. “These are separate from falling victim to unprecedented economic conditions or a market dislocation.”
Holub, soon to retire as head of the Missouri league, said NCUA already has the authority to taken action against abusive severance deals without passage of a new rule.
CUNA also opposes the proposal. “In CUNA’s view,” wrote Mary Dunn, head of egulatory compliance, “proposals on these subjects, especially the issue of indemnification, should reflect several important considerations. First, the system of credit union board governance, which depends in large measure on the willingness of volunteers to serve, is a remarkable and delicate structure that deserves protection and encouragement. This includes some measure of protection from the prospect of personal ruin resulting from legal proceedings that may or may not ultimately have merit.”
“Also,” she wrote, “we believe NCUA must be careful to avoid even the appearance that it is attempting to tip in the scales of justice in its favor by writing rules that would disadvantage credit unions or their officials should challenges under such rules occur, especially since NCUA has much greater resources to pursue litigation than do either credit unions or their officials.”
Christine Burns-Fazzi , a partner in the Charlotte, N.C., executive compensation firm, wondered how the proposed rule will affect contracts to pay a golden parachute payment that are entered into when a credit union is in a healthy financial condition.
