By Paul Hodgson – CCO and Senior Research Associate
Yesterday, the SEC announced new rules governing the use of compensation advisers and the independence and role of the compensation committee of the board. Falling short of mandating the complete independence of such advisers by requiring the compensation committee to hire only those advisers that do no other work for the company, the SEC requires such potential conflicts of interest to be considered by the committee.
The rules cover the following issues:
- The independence of the members on a compensation committee
- The committee’s authority to retain compensation advisers
- The committee’s consideration of the independence of any compensation advisers and
- The committee’s responsibility for the appointment, compensation, and oversight of the work of any compensation adviser.
Given that the disclosures about other work such as benefit consulting have been in place for a couple of years, these regulations do not do much more beyond codifying what most companies are already doing. With the disclosures in place, companies have either been making the perceived conflicts of interest go away by swapping compensation consultants, or shareholders have reviewed the information and decided that they are not concerned or, if they are concerned, have been engaging privately with companies on the issue.