Independence of Compensation Committees
General Warning: Before receiving advice from consultants or outside legal counsel, compensation committees should make an independence determination after receiving their 10C-compliant independence disclosure. Further, this independence disclosure and determination should occur annually. With questions, contact Mark.
SEC Releases and Authorities
2012.June.30 SEC Final Rules for Comp. Comm. Independence - A Few Twists
The SEC has given the stock exchanges 90 days within which to propose rules, and one year within which to adopt final rules, implementing final SEC regulations relating to the independence of compensation committees and their advisors. See Paul Hastings Summary. Regarding the latter, the SEC expanded the final rules in subtle ways, such as by requiring a 6-point independence evaluation of all advisors to the compensation committee (including legal counsel). Here is relevant text from pages 31-32 of the adopting release:
IMPLICATION#1: Compensation committees will need to establish a process by which to make the foregoing determination for Boards, perhaps through amendments to their charters, along with new disclosures in D&O questionnaires.
IMPLICATION #2: Compensation committees should evaluate the independence of advisors (other than in-house counsel) before seeking advice. See the following text quoted from the SEC release:
"In response to comments,128 we are including an instruction to the final rule to provide that a compensation committee need not consider the six independence factors before consulting with or obtaining advice from in-house counsel. ... This instruction will not affect the obligation of a compensation committee to consider the independence of outside legal counsel or compensation consultants or other advisers retained by management or by the issuer."
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