By Cydney Posner

Today, the Treasury sent legislation to Congress designed to ensure that compensation committees are independent in fact.

The proposed legislation, would require:

  • Annual non-binding say-on-pay votes by shareholders to approve the compensation of executives as disclosed in proxies pursuant to the SEC's compensation disclosure rules, as well as non-binding shareholder approval of golden parachutes in the context of business combinations;
  • Stronger independence standards for comp committees, structured much like the audit committee standards under SOX, to be promulgated by the SROs, including a prohibition on accepting any consulting, advisory or other compensatory fee from the issuer, other than as a member of the BOD, or being an affiliated person of the issuer;
  • Compensation consultants and outside counsel working for comp committees who are independent from management, under independence standards to be promulgated by the SEC through the SROs;
  • The comp committee to have the authority, in its sole discretion, to retain and obtain the advice of a compensation consultant meeting the specified standards for independence, with the committee to be directly responsible for the appointment, compensation and oversight of the work of the consultant, and with proxy disclosure about whether the committee retained and obtained the advice of a comp consultant meeting the specific standards for independence and, if not, an explanation of the basis for the committee's determination not to retain such an independent consultant;
  • The comp committee to have the authority, in its sole discretion, to retain and obtain the advice of independent legal counsel and other advisers meeting the specific standards for independence, with the committee to be directly responsible for the appointment, compensation and oversight of their work;
  • Issuers to provide for appropriate funding, as determined by the comp committee, for payment of independent consultants, outside counsel and advisors; and
  • Of course, a two-year study of the use of independent consultants.

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