SEC Adopts Final Rule Requiring Listing Standards for Compensation Committees and Compensation Advisers
The Securities and Exchange Commission (SEC) has adopted a final rule (pdf) implementing Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), (pdf) which directs national securities exchanges/associations (e.g., NYSE, NASDAQ) to establish listing standards for public company boards of directors and compensation advisers. In general, these standards will require that compensation committee participants be members of the board of directors and meet a heightened standard of independence in order for the company’s shares to continue trading on those exchanges. The rule also amends proxy disclosure rules to include disclosures about the use of compensation consultants – including fees paid to such consultants – and conflicts of interest.
As outlined in an SEC press release and fact sheet, the rule will require exchange listing standards to address the following:
- The independence of the members on a compensation committee
- The committee’s authority to retain compensation advisers
- The committee’s consideration of the independence of any compensation advisers and
- The committee’s responsibility for the appointment, compensation, and oversight of the work of any compensation adviser.
No later than 90 days after the new rule and rule amendments become effective, each exchange that lists equity securities must propose listing standards that comply with the new rule. The new listing standards must be approved by the SEC within one year of the new rule becoming effective.
According to SEC Chairman Mary L. Schapiro, “This rule will help to enhance the board's decision-making process on executive compensation matters, particularly the selection, engagement and oversight of compensation advisers, and will provide more transparency with respect to conflicts of interest of consultants engaged by boards.”
A detailed analysis of this rule and its implications is forthcoming.
Photo credit: Ramy Majouji