Corporate Governance

SEC?s New Rules Re Compensation Committees and Their Consultants

By Adam G. Kurtz

    The SEC voted to propose rules directing the national securities exchanges to adopt listing standards related to a company?s compensation committee, as well as the compensation advisers that these committees retain, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, Section 952.

    In particular, the proposal requires the ?listing standards? to address the following areas of concern:

1.    Independence of the members on a compensation committee: each member of a company?s compensation committee must now be a so-called independent member of the board, i.e., whether the board member is affiliated with the company;

2.    Authority and Funding of the Compensation Committee: the committee is responsible for the appointment, payment and oversight of a compensation adviser; and

3.    Compensation Adviser Selection:  the compensation committee must consider five factors when selecting a compensation consulting company, i.e., (i) whether they are providing any other services to the company, (ii) how much they receive in fees, (iii) what policies and procedures have been adopted to prevent conflicts of interest. (iv) whether they have any business or personal relationship with a member of the compensation committee and (v) whether they own any stock of the company.

    Finally, the proposed rules require that each company disclose in its proxy material whether its board?s compensation committee retained or obtained the advice of a compensation consultant and to disclose whether the work of the compensation consultant has raised any conflict of interest and, if so, the nature of the conflict and how the conflict is being addressed.

    Public comments and data on matters relating to the proposed rules, including the costs and benefits associated with the proposals, should be received by April 29, 2011.

    For further information see: (i) SEC Press Release entitled SEC Proposes Rules Requiring Listing Standards for Compensation Committees and Compensation Consultants (March 30, 2011) and (ii) the actual draft of the proposed SEC rule

Full post as published by PomTalk on April 01, 2011 (boomark / email).