As soon as next month, the National Credit Union Administration is expected to issue a new proposed rule on executive compensation transparency for federal credit unions. Following changes earlier this year requiring credit unions with more than $1 billion in assets to report income from overdraft and nonsufficient funds fees, the rule on compensation will reinforce NCUA Chairman Todd Harper’s pointed push for greater transparency within the $2.3 trillion credit union system.
In a recent op-ed, he called on credit unions “to embrace transparency” as “all federal credit union member-owners deserve to know what their credit union leadership is paid.”
Unlike state-charted credit unions and nearly all other nonprofit organizations, federal credit unions do not file IRS Form 990. This annual disclosure details certain financial information, including compensation data for key employees.
990s also provide some level of accountability by helping to ensure that tax-exempt groups are adhering to their missions and satisfying their statutory obligations. As Chairman Harper asserted, “transparency is the sunshine that better protects credit union members and the system.”
And he’s not alone in saying this.
At the NCUA’s July meeting, Board Member Tanya Otsuka highlighted trends in credit union executive compensation. Citing a 2023 survey, she noted “we are seeing both a rise in total executive pay and incentive-based pay.”
The NCUA explored this blind spot over 15 years ago in the wake of congressional and media scrutiny around credit union activities and practices. In a 2008 report to the NCUA board, the agency’s Outreach Task Force determined that the “NCUA’s current policy guidance on the disclosure of senior executive officer compensation to members of federal credit unions should be modified to require improved transparency.” This would be “consistent with prevalent public policy” as well as the “member-owned, democratically-controlled status” of federal credit unions. Unfortunately, the industry resisted all efforts to disclose executive compensation, and nothing changed.
Since then, the credit union industry has experienced extraordinary growth that shows no sign of slowing down. Rather than focusing on their mission of service to those of modest means within a well-defined field of membership, some credit unions have pursued expansion by pushing the boundaries of membership, buying banks in new geographic areas that specialize in commercial lending, and plowing millions of dollars into marketing campaigns (one credit union’s new stadium naming deal with the NFL’s Washington Commanders is a glaring example).
Executive compensation is the thread that ties these trends together. More specifically, these trends are often a direct result of linking executive compensation to asset size.
Although the precise contours of the NCUA’s executive compensation transparency proposal remain unknown, ongoing shifts across the credit union landscape necessitate disclosure that goes beyond membership. While transparency and accountability are critical for credit union members, they are equally important to consumers, communities and taxpayers.
As tax-exempt entities, federal credit unions should have the same executive compensation reporting requirements as state-chartered credit unions and most other nonprofits.
As Chairman Harper observed when he announced the overdraft and nonsufficient fund fees policy, “There is this myth within the credit union system that because credit unions are owned by their members, they’re always going to do right by their members…the people who manage the credit union, their interest doesn’t always align with that of the members.”
Executive compensation transparency for federal credit unions would be one step closer toward remedying that misalignment.
