New Rules Regarding Compensation Committees and Consultants

The SEC has recently proposed new rules pertaining to the independence of compensation committee members and consultants.  Under the proposal prescribed by Section 10C, the SEC would require that each member of a compensation committee be “independent”.  The independent compensation committee members will have the authority to retain compensation consultants, and in doing so, have direct responsibility for the appointment and payment of consultants.  They also would have the ability to exercise their own judgment based on the advice from the consultant.  The consultants must also be “independent”.  With the hiring of outside consultants, Section 10C requires disclosure in the company’s annual proxy statement specifically stating whether or not the company obtained advice from a consultant and if there was any conflict of interest raised.  While item 407(e)(3) of Regulation S-K already requires disclosure of fees regarding compensation consultants, the proposal would fuse the Section 10C requirements with the existing S-K requirements.  The proposed rules would be adopted no later than July 16, 2011.