House passes executive compensation bill

On Friday, July 31, the House passed H.R. 3269, informally referred to as the executive compensation bill.  This will affect credit unions and compensation packages for credit union executives.  Here are the key provisions of which you must be aware:

•    Applies only to credit unions larger than $1 billion in assets (153 as of 1Q09)

•    Disclosure of compensation for executive officers should include “the compensation committee report, the compensation discussion and analysis, the compensation tables, and any related materials.”

•    While credit unions should “provide for a separate shareholder vote to approve the compensation of executives,” this vote “shall not be binding on the issuer or the board of directors and shall not be construed as overruling a decision made by such board”

•    Requires a separate nonbinding shareholder vote on any “golden parachute” packages for executives who leave the credit union as a result of a merger or acquisition

•    Allows “the appropriate Federal regulators” to restrict incentive-based compensation that “could threaten the safety and soundness of covered financial institutions; or could have serious adverse effects on economic conditions or financial stability”

Questions and implications for the industry:

•    Should credit unions act in anticipation of the passage of this bill to avoid being lumped into the same category as banks?  What message should be conveyed to legislators? What role will the media play in shaping the impact of this bill for members?

•    While the bill requires disclosure and a non-binding vote at the annual shareholders meeting, many state chartered credit unions already file a Form 990 which discloses executive compensation. Are there other channels through which credit unions should disclose executive compensation? What additional information will members need to put compensation disclosure in the right context?

To read the full version of the bill:
H.R. 3269

To view Chip Filson’s comments on the potential advantages of disclosing executive pay:
What is the Member’s Right to Know?