Securities exchanges must adopt listing standards to regulate the independence of compensation committee members, the committee’s authority to retain compensation advisers and the committee’s responsibility for the appointment, payment and work of any compensation adviser, under rules the SEC unanimously proposed today.
The rules stem from Section 952 of the Dodd-Frank Act, which required the SEC to direct exchanges to implement these listing requirements. Section 952 also mandated that listed companies must be in compliance with the new listing standards when they go into effect, or be delisted. Companies must disclose the use of compensation consultants in their proxy statements, whether they were used as an adviser or simply retained, and disclose if the compensation consultant’s work raised any conflict of interest and how potential conflicts are being addressed.
Exchanges are allowed to develop their own definition of an “independent” director, and would still need to seek the SEC’s approval before adopting any new listing standards.
The SEC is accepting public comments on the proposed rules until April 29, 2011.