Notice of Petition - "Compensation, Retirement Programs and Related Benefits" Alfred Porter 5651 Balloon Fiesta Parkway NE Albuquerque, NM 87113-2164
April 19, 2013
Barry F Mardock Deputy Director, Office of Regulatory Policy, Farm Credit Administration 1501 Farm Credit Drive McLean, VA 22102-5090
Dear Barry Mardock:
Farm Credit of New Mexico appreciates the opportunity to respond to the Agency‚€™s publication of the Regulatory Petition filed by The Farm Credit Council in regard to the ‚€œsay on pay‚€Ě provisions in the Final Rule regarding ‚€œCompensation, Retirement Programs, and Related Benefits‚€Ě and to respond to the question raised by the Agency that follows:
What reasonable alternative(s) to the non-binding, advisory vote provisions on senior officer compensation would comparably engage shareholders and provide them greater transparency in and disclosure of their institution‚€™s senior officer compensation practices?
As previously written to FCA by Farm Credit of New Mexico, we concur with The Farm Credit Council that it was not the intent of Congress to create a non-binding vote for senior compensation. To clarify Congress‚€™ intent, we agree that an alternative is to ask them if a ‚€œsay on pay, non-binding vote‚€Ě is truly necessary.
Farm Credit of New Mexico is in total agreement that transparency to our shareholders is critical in the financial environment today. Creating a ‚€œnon-binding vote‚€Ě on decisions made by their elected peers does not improve transparency but can create confusion and dismay amongst stockholders. Our Directors have been sent to training sessions pertaining to compensation and ways to retain talented senior management, whereas, the remaining shareholders may not have the opportunity for the training or to meet with consultants that understand the true market conditions in the area of compensation. Finding and retaining top level management is not easy today as we compete daily with other large commercial banks for our talent pool.
Our Association has prided itself on establishing a strong competitive salary program that is performance based. Let me give you an example of our performance base compensation program that our Association went through in 2009. During that year, our District Bank was unable to pay their typical patronage and we also made a substantial funding to our Allowance for Loan Losses Account. Based on these two events occurring, our earnings were approximately $5.0 million below our business plan. Therefore, as CEO I went to the Board and informed them that our earnings were not adequate to pay full patronage and our annual incentive payments as per the year-end numbers. As a team, we decide to cut the patronage by 50% and the variable incentive payments to employees were cut 50% too. Therefore, I‚€™m here to say that management and boards do make the right decisions when necessary and this was not presented to the membership for a ‚€œnon-binding vote‚€Ě. I share this past experience with you as the following year, 2010; our Association‚€™s profitability returned to its normal level and the compensation increase for senior management would have exceeded a 15% increase due to substantial change in variable incentive pay. In turn, this would have created a need for a ‚€œnon-binding vote‚€Ě if the new guideline would have been in effect. The way the Board of Directors handled this matter is the way any corporation should deal with a poor year versus a good year.
Overall, the Farm Credit System has prided itself on doing the right things for many years and this is evident with the number of financially sound Associations across the country. To create a new- confusing process such as a ‚€œnon-binding vote‚€Ě for all shareholders will not benefit the system long term as it does open up a great amount of exposure to our current board members. Our Association today has a difficult time finding candidates to run for director positions. So if we add more potential exposure to these positions we may have additional issues down the road. Therefore, I encourage FCA to consider Farm Credit Council‚€™s suggestion of consulting Congress on their thoughts on ‚€œsay on pay, non-binding vote‚€Ě and consider some of the additional disclosures for compensation programs that Farm Credit Council has recommended within specific Association‚€™s Annual Financial Reports.
Farm Credit of New Mexico appreciates any consideration you may give to prevent the non-binding, advisory vote provisions.