New Deferred Compensation Rules Proposed

Guest Post by Expert Geoff Winkler

National Credit Union Administration Proposes New Deferred Compensation Rules for Financial Firms

The National Credit Union Administration (NCUA) released a new proposal Thursday aimed at meeting the incentive compensation requirements under the Dodd-Frank Act of 2010. The proposal, which was initially presented in 2011, seeks to lengthen deferred bonus compensation requirements and strengthen clawback provisions found in many large financial firms. The NCUA’s proposal will apply to senior executives and other employees that the NCUA is categorizing as “risk-takers” within financial firms that meet the criteria laid out below.

Affected Companies

Financial Firms with more than $1 billion in assets are subject to the proposed rule, with specific requirements based on the size of the firm. For firms with more than $250 billion in assets, senior executives that meet individual criteria below will have 60 percent of their bonus compensation deferred for four years, while other employees will have 50 percent deferred, also for four years. For firms with $50-$250 billion in assets, senior executives will have 50 percent of their bonus compensation deferred for three years, with other employees having 40 percent of their bonus compensation deferred. Firms with less than $50 billion in assets have some requirements, but they are not subject to deferred compensation.

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According to the Securities and Exchange Commission, the proposed rule will affect approximately 131 banks and brokerages.

Affected Individuals

In order for a senior executive or employee to be considered a risk-taker and, therefore, subject to the proposed rule, their compensation bonus must account for at least one-third of their total pay. Of the identified risk-takers, the proposed rule will only apply to those who have control over one-half of one percent of company’s total capital or are among the top five percent of earners in the firm.

It is important to note that individuals who do not meet the above risk-taker criteria may still be subject to the proposed rule, since it grants regulators the power to name specific individuals as risk-takers if they believe that the rule should apply.

The NCUA is accepting public comment until July 22, 2016 and the rule will be reviewed by the Federal Deposit Insurance Corporation, Federal Housing Finance Agency, Federal Reserve Board of Governors, Treasury Department’s Office of Comptroller of the Currency and Securities and Exchange Commission.

More information on the proposed rule can be found on the NCUA website.