July 11, 2012
More on “Open Issues In Wake of the SEC’s Compensation Advisors Rulemaking”
– Broc Romanek, CompensationStandards.com
Recently, I blogged about some open issues in the wake of the SEC’s rulemaking, particularly when dealing with compensation advisors. Here is an excerpt from this Gibson Dunn memo (we have also posted oodles of other memos on this topic):
The independence assessment requirements of the rules are likely to be the most burdensome and controversial aspect of the SEC’s rulemaking under Section 10C. They require that a review and assessment of independence be conducted by the compensation committee prior to receiving advice from a compensation adviser, and that review must encompass relationships of both the individual providing advice to the committee and the entity that employs that individual. We expect significant interpretive issues to arise under this standard, some of which we expect will be addressed in the context of the stock exchanges’ proposal, review and adoption of listing standards implementing Rule 10C-1. Among those issues are the following:
– What does it mean to “provide advice” to a compensation committee? Is this only triggered when an individual appears before the compensation committee, or does it also encompass any work product that is presented to the committee, and, if so, is that only when the work product is attributed to an adviser?[20] Although the rules exclude in-house legal counsel, will other company employees such as human resources personnel, actuaries or accountants be deemed to be covered by the rules, or will they not be viewed as compensation advisers?
– How will the standard apply when advice is provided by a number of individuals? If an individual working for a compensation consultant makes a presentation to the compensation committee, must the assessment be performed only with respect to that individual, or also with respect to each individual at the compensation adviser that worked on or helped to develop the information contained in the presentation?
– What type of information constitutes “advice” that triggers the requirement? Does the standard apply only with respect to advice relating to executive compensation, or does it also apply with respect to advice on director compensation or broad-based employee benefit plans? Does it only apply with respect to individualized advice, or does it also apply to, for example, survey information compiled by a compensation adviser and sold on a subscription basis to a large number of companies?