SEC Adopts Rule Requiring Listing Standards for Compensation Committees and Compensation Advisers
The Securities and Exchange Commission has approved a rule that directs national securities exchanges to adopt listing standards for public company boards of directors and compensation advisers.
The new rule, required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires exchange listing standards to address:
- 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.
Once an exchange’s new listing standards are in effect, a listed company must meet the standards in order for its shares to continue trading on that exchange.
“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,” said SEC Chairman Mary L. Schapiro.
The SEC also amended its proxy disclosure rules to require new disclosures from companies about their use of compensation consultants and conflicts of interest.
The new rule and rule amendments will take effect 30 days after publication in the Federal Register. No later than 90 days after effectiveness, 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 Commission within one year of the new rule becoming effective.