Executives at many large U.S. banks will have to wait an additional year for their incentive-based compensation to vest fully under a regulatory proposal to discourage risk-taking.
The National Credit Union Administration (NCUA) proposed the rule last week to fulfill a Dodd-Frank financial reform mandate. Other regulatory agencies must weigh in before a final version is adopted.
The rule would divide financial institutions into three categories, with those with $250 billion or more in assets considered Level 1 and subject to the highest standards.
For senior executives at Level 1 banks, deferment of at least 60% of their qualifying incentive-based compensation for each performance period would increase to four years from the current three, while significant risk-takers at those institutions must defer 50% of their incentive-based pay.
Midsize large institutions, with between $50 billion and $250 billion in assets, must defer the incentive-based pay of top executives by at least 50% for three years, while risk-takers must defer 40% of incentive-based pay for that time period.
“Congress mandated action in this area because there were financial institutions which failed as a result of excessive risk-taking that was encouraged by incentive-based compensation arrangements” NCUA vice chairman Rick Metsger said in a statement.
The proposal would allow regulators the discretion to require Level 3 institutions — those with between $50 billion and $250 billion in assets — to be subject to either of the restrictions for Level 1 or 2 institutions depending on the “complexity of operations or compensation practices.”
Jim Nussle, CEO of the Credit Union National Association, said the rule gives the NCUA “too much supervisory authority over how credit unions remunerate their employees. CUNA will continue working closely with NCUA to change the proposed thresholds and to minimize the extent to which the agency will review and supervise incentive compensation programs at credit unions.”
“This is another one-size-fits-all rule from regulators,” he added. “While the intent is to rein in the bad actors who brought upon the economic crisis, credit unions are yet again being saddled with regulatory burden.”