CUNA Regulatory Comment Call


April 17, 2007

Disclosure of Merger Related Compensation Arrangements

EXECUTIVE SUMMARY

BACKGROUND

The Federal Credit Union Act requires that the merger of federally insured credit unions receive the written approval of the NCUA Board. The NCUA Board is also authorized to issue rules regarding this process. Click here for a copy of NCUA’s Credit Union Merger and Conversion Manual, which provides additional information regarding the merger process.

When the merging credit union is an FCU, members have the right to vote on whether to approve the merger. (State law determines whether members of a state-chartered credit union are entitled to vote on a proposed merger.) The one exception is if NCUA determines that the FCU is in danger of insolvency.

BRIEF DESCRIPTION OF THE PROPOSED RULE

The proposed rule will require the disclosure of any arrangements that provide a material increase in compensation or benefits to senior management officials in connection with a merger transaction. This information would be included in the merger plan submitted to NCUA, and NCUA would also have the right to request further details about these arrangements in connection with its review of the merger plan. The rule only imposes disclosure requirements. It does not prohibit the offering of additional compensation to senior management officials that the credit union believes would be appropriate.

A “material” increase in compensation will be defined as an increase of 15% above the official’s current compensation or $10,000, whichever is greater. This proposal is designed to cover salary, bonuses, deferred compensation, or other financial awards offered to influence the decision regarding a merger. A “senior management official” will be defined as the chief executive officer, any assistant chief executive officer, and the chief financial officer.

FCUs will also be required to disclose the existence of a material compensation arrangement in the materials provided to the members eligible to vote on the proposed merger. (Again, state law determines whether members of a state-chartered credit union are entitled to vote on a proposed merger.)

A member of the FCU will also be entitled to inspect the credit union’s records detailing these compensation arrangements; the inspection would take place at an office of the credit union during regular business hours. The rule does not specify which office that would be and expects the credit union and member to make reasonable arrangements that are mutually acceptable.

The member requesting the inspection would need to submit a request in writing to the credit union at least one day before the date of the meeting called for the purpose of voting on the merger. At the inspection, the member will have the right to review the documents but not the right to make or retain copies.

QUESTIONS TO CONSIDER REGARDING THE PROPOSED RULE ON MERGER RELATED COMPENSATION ARRANGEMENTS

Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Lilly Thomas • Assistant General Counsel • (202) 508-6733 • lthomas@cuna.com
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com