When Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, one of the problems it aimed to address was the failure of companies to adequately tie compensation to company performance. Section 952 of Dodd-Frank mandated that the Securities and Exchange Commission (SEC) issue rules requiring the national exchanges to adopt listing standards related to the independence of listed companies’ compensation committees and compensation committee advisers. The SEC adopted final Rule 10c-1 pursuant to Section 952 in June, and on Sept. 25, both the New York Stock Exchange (NYSE) and Nasdaq filed proposed listing standards with the SEC.
The NYSE proposal and Nasdaq proposal largely stick to the SEC requirements, with a few exceptions. Their basic impact is to heighten independence standards for compensation committees and their advisers. They offer few surprises, and experts say that any additional requirements they do impose are unlikely to have much of a practical effect on most listed companies.
Dodd-Frank mandated that compensation committees selecting a compensation consultant must consider five factors; the SEC added one. There is no requirement for compensation committees only to hire independent consultants, but they must make the assessment and disclose conflicts of interest (see “Consultant Disclosures”). The SEC’s rule required that listing standards mandate that compensation committees consider: