On June 20, 2012, the Securities and Exchange Commission (SEC) adopted final rules to implement the compensation committee independence requirements under Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). The final rules require the national securities exchanges (such as the New York Stock Exchange and NASDAQ) to establish certain minimum listing standards with respect to:
- the independence of compensation committee members
- the authority and responsibilities of the compensation committee
- the process to be followed when selecting compensation consultants and other advisors
While the final rules allow the exchanges until June 27, 2013 to implement new listing standards after receiving approval from the SEC, new requirements could be very well be in place before the 2013 proxy season. Overall, the SEC made relatively few changes to the proposed rules that were issued in March 2011. A public company must meet an exchange’s listing standards in order to have its equity securities traded on that exchange. In addition, the SEC also amended its proxy rules to require additional disclosure if the work of a compensation consultant has raised a conflict of interest. This new requirement will be in effect for the 2013 proxy season—even if the exchanges have not finalized new listing standards—and complying with it will require action before next year’s election of directors. Please click here for a discussion of the final rules.