Today, the SEC issued its Final Rule on Compensation Committee Independence under Dodd-Frank Act Section 952, which includes rules on the independence of advisers. Section 952 added Section 10C to the Securities Exchange Act of 1934, which requires the SEC to adopt rules directing the national securities exchanges and national securities associations to prohibit the listing of any equity security of an issuer that is not in compliance with Section 10C's compensation committee and compensation adviser requirements. Thus, the SEC's New Rule 10C-1 directs the national securities exchanges to establish listing standards that, among other things, require each member of a listed issuer's compensation committee to be a member of the board of directors and to be "independent," as defined in the listing standards of the national securities exchanges.
In the new Final Rules, the SEC also adopts amendments to its proxy disclosure rules concerning issuers' use of compensation consultants and related conflicts of interest pursuant to Section 10C(c)(2). The new Rule is effective 30 days after publication in the Federal Register, which means sometime in July.
Due to the length of the rules, I will only remark on one aspect of them today, one that is near and dear to my heart. The SEC's final rule confirms that 10C does not require compensation committees to retain or obtain advice only from independent advisers. A listed issuer's compensation committee may receive advice from non-independent counsel, such as in-house counsel or outside counsel retained by management, or from a non-independent compensation consultant or other adviser, including those engaged by management.
The final rule also does not require a compensation committee to be directly responsible for the appointment, compensation or oversight of compensation advisers that are not retained by the compensation committee, such as compensation consultants or legal counsel retained by management. Rather, the direct responsibility to oversee compensation advisers applies only to those advisers retained by a compensation committee, and the obligation of the issuer to provide for appropriate funding applies only to those advisers so retained.