Business & industry

National securities exchanges have been directed to adopt listing standards for public company boards of directors and compensation advisers under a rule approved by the SEC.

The rule is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203. For listed companies to continue having their shares traded on an exchange, the companies will have to meet the exchange’s new listing standards when they take effect.

Listing standards will be required to address the independence of the members on a compensation committee. The standards also must address the committee’s authority to retain compensation advisers and its consideration of the independence of any compensation advisers. In addition, the standards must address the committee’s responsibility for the appointment, compensation, and oversight of the work of any compensation advisers.

The rule and its amendments will take effect 30 days after publication in the Federal Register. Securities exchanges will be required to propose listing standards that comply with the rule within 90 days after it takes effect. The standards must be approved by the SEC within one year of the new rule’s effective date.

“This rule will help to enhance the board’s decision-making process on executive compensation matters, particularly the selection, engagement, and oversight of compensation advisers, and will provide more transparency with respect to conflicts of interest of consultants engaged by boards,” SEC Chairman Mary Schapiro said in a statement.

The exchanges’ listing standards will have to require that each member of a company’s compensation committee be a member of the board of directors and be independent. The definition of independence will be required to include the source of compensation of a member of the board of directors, and whether a member of the board is affiliated with the company or a subsidiary.

Listing standards must require that compensation committees are directly responsible for the appointment, compensation, and oversight of compensation advisers.

The listing standards must require that a compensation committee can select a compensation consultant or adviser only after considering the following independence factors:

  • Whether the compensation consulting company employing the adviser is providing other services to the company.
  • The percentage of the adviser’s total revenue that the company has paid in fees to the compensation consulting company employing the adviser.
  • The conflicts-of-interest policies adopted by the compensation consulting company.
  • Whether the compensation adviser has a business or personal relationship with a member of the compensation committee or owns stock in the company.
  • Whether the compensation adviser or the person employing the adviser has any business or personal relationship with the executive officer of the issuer.

The rule is available at


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