• NCUA has approved a draft of an NPR on executive compensation.
  • The NPR likely will also be issued by FDIC, OCC, FRB, FHFA and SEC.
  • Comments likely will be due by July 22.
  • The rule would apply to institutions with assets ≥$1 billion (Level 3), with more requirements if assets ≥$50 billion (Level 2), and even more if assets are ≥$250 billion (Level 1).
  • Like the rule proposed in 2011, the rule prohibits incentive-based compensation that "encourages inappropriate risk" or that "could lead to material financial loss."
  • The rule will also apply to individuals at ≥$50 billion institutions who are not senior executive officers but who receive at least one-third incentive-based compensation, and are among the top 5% (Level 1) or top 2% (Level 2) of compensated individuals at the institution, as well as anyone who is in a position to put the institution at risk of material financial loss (called "significant risk-takers").
  • Compensation, fees, and benefits are considered excessive when amounts paid are unreasonable or disproportionate to the value of the services performed in light of "all relevant factors."
  • Compensation arrangements at ≥$50 billion institutions must include deferred payment, forfeiture and downward adjustments, and clawback requirements.
    • For four years Level 1 institutions (three years for Level 2) must defer at least 60% of a senior executive's (50% for Level 2), and at least 50% (40% for Level 2) of a significant risk-taker's qualifying incentive-based compensation.
    • Compensation must be forfeited or adjusted downward based on poor financial performance attributable to the individual's violation of the institution's policies and procedures, or non-compliance with law.
    • Arrangements must permit the institution to clawback compensation for seven years following the date on which compensation vests, if the institution determines that the covered person engaged in misconduct that resulted in significant financial or reputational harm to the institution.
  • Boards of directors (or committees) must review and approve all new incentive-based compensation arrangements, and annually must create records that are retained for seven years.
  • Records must be available for independent audits of incentive-based compensation arrangements, policies, and procedures, in the form requested by regulators.
  • Recordkeeping requirements for ≥$50 billion institutions are more stringent and require more details, but such requirements also may be imposed on smaller institutions, case by case.