SEC Proposes Rule on Comp Committee Members

by Stephen Barlas for Human  Resource Executive Online, June 7th, 2011.

The Securities and Exchange Commission does not require compensation committee members to be “independent,” but companies will have to disclose potential conflicts of interest, according to the proposed rule, which is similar to the rules regarding comp committee advisers. 

Business groups are generally happy with the U.S. Securities and Exchange Commission’s proposal requiring independence of board compensation committees, although they are resisting new disclosures about compensation consultants.

The SEC’s proposed rule is another of the many proposed and final rules flowing out of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which added Section 10C to the Securities Exchange Act of 1934.

Section 10C requires the Commission to adopt rules directing the national securities exchanges — the big players are the New York Stock Exchange, Euronext and NASDEQ — to establish guidelines for the ways companies must determine whether comp committee members are independent.

The legislation does not require compensation consultants to be independent, but companies may have to disclose in their annual reports potential consultant conflicts beyond what is currently required in Regulation S-K.

Dodd-Frank’s guidelines, and the SEC’s translation of them into regulatory language, generally track the independence rules already in place at the exchanges with regard to boards of directors generally. (continue reading… )

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