SEC Takes Next Step To Implement Dodd-Frank Act's Compensation Committee

Author:Ms Mia Kelley, Knute J. Salhus, Thomas W. White and Jonathan Wolfman
Profession:WilmerHale
 
FREE EXCERPT

The SEC has amended existing proxy disclosure requirements and adopted a new rule to implement the provisions of section 952 of the Dodd-Frank Act relating to compensation committees.1

The amendment to Item 407(e)(3) of Regulation S-K requires proxy disclosure of compensation consultant conflicts of interest. The new disclosures must be provided in connection with stockholders meetings that are held on or after January 1, 2013. No further rulemaking is required to implement this disclosure requirement.

New Rule 10C-1 under the Exchange Act requires stock exchanges to propose by September 25, 2012 and to have in effect by June 27, 2013 listing standards regarding the independence of compensation committee members and enhanced duties and authority of compensation committees with respect to compensation consultants, legal counsel and other advisers.

Disclosure of Compensation Consultant Conflicts of Interest

All companies that are subject to the SEC's proxy rules (including smaller reporting companies, controlled companies and issuers that are not listed on a stock exchange) will be required to disclose the nature of any conflict of interest arising from the work of any compensation consultant and how that conflict is being addressed. This new disclosure requirement, added as Item 407(e)(3)(iv) of Regulation S-K, applies to compensation consultants that are required to be identified in the proxy statement under existing Item 407(e)(3)(iii) of Regulation S-K.2

An instruction to new Item 407(e)(3)(iv) specifies the following non-exclusive list of factors that should be considered in determining whether a conflict of interest exists:

the provision of other services to the company by the firm that employs the individual compensation consultant who provides advice; the amount of fees received from the company by the firm that employs the compensation consultant, as a percentage of the total revenue of that firm; the policies and procedures of the firm that employs the compensation consultant that are designed to prevent conflicts of interest; any business or personal relationship of the individual compensation consultant with a member of the compensation committee; any stock of the company owned by the individual compensation consultant; and any business or personal relationship of the individual compensation consultant or the firm employing the compensation consultant with an executive officer of the company. Companies should adopt procedures to gather the above information so that the compensation committee can assess whether a conflict exists and take any desired actions in response to any identified conflicts prior to when proxy disclosure is first required.

The new disclosure is required in any proxy or information statement for an annual meeting of stockholders...

To continue reading

REQUEST YOUR FREE TRIAL