SEC Proposed Rules for Compensation Committee Members and Advisers

As directed by the Dodd-Frank Act, the SEC has proposed rules that require the exchanges, including the NYSE, to adopt listing standards related to compensation committee members and compensation advisers. These rules will also require new disclosures about the use of compensation consultants and conflicts of interest. Final rules are required by the Dodd-Frank Act to be adopted by July 16, 2011 with listing standards to be finalized within a year following publication of the SEC's final rules.

The proposed rules require listing standards be adopted to address the independence of compensation committee members, the authority of the committee to retain compensation advisers and the committee's responsibility for the appointment, payment and work of any compensation adviser. As with any listing standard, the company must meet these requirements for continued listing of its shares on the exchange.

 

 

The proposed rules require listing standards be adopted requiring each member of the compensation committee to be a board member and to be independent. When determining the definition of independence, the exchanges are to consider, along with any other factors the exchanges add, the sources of compensation for a director, including any consulting, advisory or compensatory fee paid by the company to the director, and whether the director is affiliated with the company or a subsidiary or affiliate of the company or its subsidiary. The exchanges will determine whether these factors will be bright-line prohibitions for independence similar to the standards for audit committee independence or simply factors for consideration.

 

 

The proposed rules require listing standards requiring that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation adviser. The compensation committee will be directly responsible for the appointment, payment and oversight of the compensation advisers. The company will be required to appropriately fund the compensation committee so it can fulfill its responsibilities.

 
The proposed rules further direct that the listing requirements provide that a compensation committee may select a compensation consultant, legal counsel or other adviser only after considering more...