WASHINGTON (CN) – National securities exchanges have to adopt listing standards requiring that the compensation committees of their members be composed of a majority of directors who are independent of the company on whose board they serve, under new rules proposed by the Securities and Exchange Commission.
An “independent” director is one that is not a current employee of the corporation, is not a former employee who receives compensation for prior services, has not been an officer of the corporation and receives only limited payment from the corporation for services as a director.
The SEC’s action is mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act as a curb on excess executive compensation packages.
In addition to having to adopt listing standards on the independence of compensation committee members, the proposed rules require member companies to disclose the use of compensation consultants in their proxy statements.
Companies that fail to comply with the listing standards would face immediate delisting.