June 28, 2012
Open Issues In Wake of the SEC’s Compensation Advisors Rulemaking
– Broc Romanek, CompensationStandards.com
Just in time to be discussed during today’s webcast – “Proxy Season Post-Mortem: The Latest Compensation Disclosures ” – the SEC’s new compensation committee/advisor release was published yesterday in the Federal Register. This starts the clock ticking as the stock exchanges now have 90 days to propose their own rules (and then a year to finalize the standards with approval from the SEC). I expect the exchange’s proposals will come sooner than the maximum 90 days.
As has been touched on in some firm memos – and as will be discussed during today’s webcast – there are some open interpretive issues in the wake of the SEC’s rulemaking, particularly when dealing with compensation advisors. For example, what it means to “receive counsel” or a possible expansive interpretation of what it means to “select” other advisers. This was an aspect that was not clear in the SEC’s proposal. In the ABA’s comment letter, this point was specifically raised as follows:
“To implement the statutory language, we believe that the final rules should clarify that Proposed Rule 10C-1(b)(4) is intended to apply only to legal counsel and other advisers “selected,” that is, separately and specifically retained by the compensation committee. We believe the statutory language does not support a more expansive approach to this provision, and that the Commission should not seek to expand the scope of the provision in a manner that would interfere with a compensation committee’s routine operation by requiring a committee to consider the specified independence-related factors before consulting with or obtaining advice from in-house counsel or outside counsel retained by the management…. For different reasons, we also believe that the requirement for an independence assessment should not apply to compensation consultants who are retained by management even if that consultant’s advice is presented to and considered by the compensation committee. Performing an independence assessment where compensation consultants, legal counsel or other advisors do not purport to be and are not held out as independent would be a time-consuming and unnecessary exercise.”
Another ambiguous aspect of the rulemaking is that it’s not on its face limited to advisers that deal with executive and director compensation, but to any advisor that the committee has. More to come…