Politics, Paychecks, And Publicity (Not The Good Kind)

NAFCU conference attendees hear of hope for change in Washington, how size and gender matters in executive pay, and that risk management includes reputations.

 
 

Politics, paychecks, and the bad kind of publicity got a close-up look this week at NAFCU’s 49th Annual Conference & Solutions Expo in Nashville, TN.

Whether it’s President Clinton or President Trump taking charge in 2017, there’s opportunity and maybe even hope for change in the White House and on Capitol Hill when it comes to regulating financial institutions, a source of deep frustration for Carrie Hunt.

Frustration, in fact, was the term used several times by Hunt, the trade group’s executive vice president and general counsel, to describe efforts to create a less-burdensome environment in which credit unions can do business.

Expected new overdraft rules, 1,300 pages of payday lending rule changes, and getting retailers to shoulder their responsibility for expensive data breaches were among the sources of that angst that Hunt and a panel of NAFCU colleagues discussed during the Thursday morning general session at the Music City Center.

“The CFPB takes a paternalistic view of how financial institutions interact with consumers, and it’s very frustrating trying to get them to understand how credit unions provide services to consumers,” Hunt said, adding, “And we know that having to comply with all those rules and regulations that don’t really protect your members is extremely frustrating for you.”

Brad Thaler, vice president of legislative affairs, said Congress “has not been happy” with the NCUA over issues such as budget transparency and examination frequency, and that lawmakers “stand ready to act in the lame duck session to force changes” if the regulator doesn’t make them on its own.

The agency has made moves in that direction and NAFCU lobbyists said they expect to see more as board chair Rick Metsger seeks to make his mark before his term expires next year. They also said the tax exemption seems safe and that both parties are teeing up their messaging for what they would like to tackle next year, including possibly repealing the Durbin Amendment and changing or repealing Dodd-Frank.

Hunt urged attendees to tell NAFCU how regulations are impacting them. “The only way we can advocate for you is if we know what your issues and concerns are,” she said. “We’re looking for your stories that we can take to the regulator.” And to Congress.

What’s In Your Wallet?

Size does matter. And so, it seems, does gender. The 10th annual version of NAFCU’s sweeping executive pay and benefits survey found nearly straight-line correlation between the size of the credit union and the size of the paycheck, and that men continue to dominate the upper echelons.

The breakout session on the 2016 NAFCU-BFB Gallagher Executive Compensation & Benefits Survey was particularly heavily attended. The 10th annual version — opened to any state-chartered or federal credit union that wanted to participate — garnered responses from 1,726 credit union executives, including 594 from the corner office.

Attendees came away with a 27-page summary report and a 70-page full report. Some findings: the 50th percentile of the 55 top executives surveyed at credit unions of less than $10 million made $46,977 in 2016. Bump that up to $385,000 for the 55 respondents in the $400 million to less than $1 billion asset group. As for the billion-dollar and up credit unions, the 48 respondents in the 50% percentile reported $566,500 in potential compensation and bonuses this year.

“There’s a very strong correlation between asset size and total compensation,” said Jack Clark of Clark Research Associates, who worked on the survey and co-presented the report. “Intuitively that makes sense but that’s also a factor you can’t and should not ignore.”

Factors such as geography, credit union philosophy, and its market all have a big effect, but Clark gave this example: the CEO of a $650 million credit union with about $430 million in loans and leases, 63,000 members and 200 employees with 11 branches typically is getting total compensation of $385,000 to $400,000, with $58,000 to $70,000 of that in possible bonuses.

“We’re not saying that’s what you should pay. That’s just what others are paying,” Clark said. “It’s a competitive market.

The same clear correlation showed up in gender. Women were in the top spot at half the responding credit unions, but at 73% of the smallest asset group and 23% of the largest. Men become the majority in the $20 million to $40 million group and the proportion grows from there up. Those numbers have been changing though, Clark pointed out. He said that 23% of women CEOs at the largest credit unions is double what it was six years ago.

Risky Business

Everything a credit union does involves risk, from opening an account to cashing a check to calming an angry member or just simply advertising a new loan offering. Reputation is among those risks, and it should not be taken lightly, said the presenter at a Thursday afternoon session on “Best Practices for Managing Reputation Risk.”

John DeLoach is a Florida-based attorney with WilliamsGautier who represents about two-thirds of the credit unions in the Sunshine State and others elsewhere. He pointed out that reputation risk was the top concern cited by executives worldwide in a recent Deloitte survey, and that it accounts for more than 25% of an enterprise’s market value, according a survey by the World Economic Forum.

“Reputation is one of those things that can be somewhat hard to define,” he says. “We’re in the risk business. Members compensate us to take risks with their money in return for value.”

A broad definition of such risk, DeLoach says, is “when performance doesn’t meet expectations.” But the NCUA, like other regulators, has its own definitions of risk management fails, one of which says this: “When management fails to meet its fiduciary duties, resulting in poor publicity or administrative action.”

“When the NCUA says ‘fiduciary duties’, that makes cold water roll down my spine, and it can be a very bad day for you,” DeLoach told his audience. He listed a litany of sources of such trouble, including consumer class action suits involving overdraft protection, CFPB actions involving auto and student lending, and even just bad publicity from an angry member on Facebook.

Deal with it, he says of the latter, by being fast and friendly. Situations involving federal consumer protections are not so simple. For instance, DeLoan says, proposed Telephone Consumer Protection Act changes “will affect every credit union, and put you in violation unless you’re using a 60s-era rotary dial phone.”

Credit unions can get themselves in hot water by doing something as simple as advertising a loan without being explicit. “As low as 5% is a lot different than 5%,” DeLoach pointed out. “Your marketing team hates me and everybody like me. They think we’re out to gut everything they want to do, and they’re creative and all that, but they need to talk to the people in IT and lending and compliance. Everyone needs to communicate on this.”

A good legal beagle, the veteran credit union attorney noted, can help avoid pitfalls and pratfalls, and even help a small credit union bring a large technology vendor to bay.

He described a contract that exists, one that says the top brass of a major vendor has to personally step up in the event of a third service-level breach event. “Imagine that large provider’s CEO getting that call from several levels down that he has to take a check for $50,000 and lay it at that credit union’s feet,” DeLoach said.

“I like a guy who brings a gun to a knife fight.”

 
 

June 17, 2016


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