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.
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