SEC Adopts Final Rule Requiring Exchanges To Establish Listing Standards Regarding Independence Of Compensation Committees And Compensation Advisers

On June 20, the Securities and Exchange Commission adopted a final rule, pursuant to Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, concerning the independence of board compensation committees and compensation consultants. The Dodd-Frank Act added Section 10C to the Securities Exchange Act of 1934, which requires the SEC to direct national securities exchanges to prohibit the listing of any equity security of an issuer that does not comply with Section 10C's compensation committee and compensation adviser independence requirements. Controlled companies and smaller reporting companies are exempt from the requirements of these listing standards, and certain other specified issuers are exempt from the compensation committee independence requirements.

Under new Rule 10C-1, national securities exchanges must adopt listing standards with the following requirements:

Each member of an issuer's compensation committee must be a member of the board of directors and must be independent as defined under the existing standards. If a compensation committee (at its sole discretion) retains or obtains the advice of a compensation adviser, it is directly responsible for the appointment, payment and oversight of that adviser. A compensation committee may select a compensation adviser only after considering specified independence factors. In addition, the SEC amended Item 407 of Regulation S-K to require each public company subject to the proxy rules (whether listed or not) to disclose, in its proxy statement, whether the work of a compensation consultant raised any conflict of interest and, if so, the nature of the conflict and how the conflict is being addressed.

Clickhere for the Final Rule Release Nos. 33-9330 and 34-67220.

Effective Dates

Rule 10C-1 and the Item 407 amendment are effective on July 27, 2012. Each national securities exchange must provide to the SEC proposed rules or rule amendments that comply with the new rule by September 25, 2012. Each exchange must have final listing rules or rule amendments approved by the SEC by June 27, 2013. Issuers must comply with amendments to Item 407 of Regulation S-K for proxy statements for meetings on or after January 1, 2013, at which directors are elected.

Requirements for Compensation Committee Members

The new rule directs the national securities exchanges to establish listing standards that require each member of a listed issuer's compensation committee to be a...