View all text of Chapter 2 B [§ 78a - § 78rr]
§ 78j–3. Compensation committees
(a) Independence of compensation committees
(1) Listing standards
(2) Independence of compensation committees
The rules of the Commission under paragraph (1) shall require that each member of the compensation committee of the board of directors of an issuer be—
(A) a member of the board of directors of the issuer; and
(B) independent.
(3) Independence
The rules of the Commission under paragraph (1) shall require that, in determining the definition of the term “independence” for purposes of paragraph (2), the national securities exchanges and the national securities associations shall consider relevant factors, including—
(A) the source of compensation of a member of the board of directors of an issuer, including any consulting, advisory, or other compensatory fee paid by the issuer to such member of the board of directors; and
(B) whether a member of the board of directors of an issuer is affiliated with the issuer, a subsidiary of the issuer, or an affiliate of a subsidiary of the issuer.
(4) Exemption authority
(b) Independence of compensation consultants and other compensation committee advisers
(1) In general
(2) Rules
The Commission shall identify factors that affect the independence of a compensation consultant, legal counsel, or other adviser to a compensation committee of an issuer. Such factors shall be competitively neutral among categories of consultants, legal counsel, or other advisers and preserve the ability of compensation committees to retain the services of members of any such category, and shall include—
(A) the provision of other services to the issuer by the person that employs the compensation consultant, legal counsel, or other adviser;
(B) the amount of fees received from the issuer by the person that employs the compensation consultant, legal counsel, or other adviser, as a percentage of the total revenue of the person that employs the compensation consultant, legal counsel, or other adviser;
(C) the policies and procedures of the person that employs the compensation consultant, legal counsel, or other adviser that are designed to prevent conflicts of interest;
(D) any business or personal relationship of the compensation consultant, legal counsel, or other adviser with a member of the compensation committee; and
(E) any stock of the issuer owned by the compensation consultant, legal counsel, or other adviser.
(c) Compensation committee authority relating to compensation consultants
(1) Authority to retain compensation consultant
(A) In general
(B) Direct responsibility of compensation committee
(C) Rule of construction
This paragraph may not be construed—
(i) to require the compensation committee to implement or act consistently with the advice or recommendations of the compensation consultant; or
(ii) to affect the ability or obligation of a compensation committee to exercise its own judgment in fulfillment of the duties of the compensation committee.
(2) Disclosure
In any proxy or consent solicitation material for an annual meeting of the shareholders (or a special meeting in lieu of the annual meeting) occurring on or after the date that is 1 year after July 21, 2010, each issuer shall disclose in the proxy or consent material, in accordance with regulations of the Commission, whether—
(A) the compensation committee of the issuer retained or obtained the advice of a compensation consultant; and
(B) the work of the compensation consultant has raised any conflict of interest and, if so, the nature of the conflict and how the conflict is being addressed.
(d) Authority to engage independent legal counsel and other advisers
(1) In general
(2) Direct responsibility of compensation committee
(3) Rule of construction
This subsection may not be construed—
(A) to require a compensation committee to implement or act consistently with the advice or recommendations of independent legal counsel or other advisers under this subsection; or
(B) to affect the ability or obligation of a compensation committee to exercise its own judgment in fulfillment of the duties of the compensation committee.
(e) Compensation of compensation consultants, independent legal counsel, and other advisers
Each issuer shall provide for appropriate funding, as determined by the compensation committee in its capacity as a committee of the board of directors, for payment of reasonable compensation—
(1) to a compensation consultant; and
(2) to independent legal counsel or any other adviser to the compensation committee.
(f) Commission rules
(1) In general
(2) Opportunity to cure defects
(3) Exemption authority
(A) In general
(B) Considerations
(g) Controlled company exemption
(1) In general
(2) Definition
For purposes of this section, the term “controlled company” means an issuer—
(A) that is listed on a national securities exchange or by a national securities association; and
(B) that holds an election for the board of directors of the issuer in which more than 50 percent of the voting power is held by an individual, a group, or another issuer.
(June 6, 1934, ch. 404, title I, § 10C, as added Pub. L. 111–203, title IX, § 952(a), July 21, 2010, 124 Stat. 1900.)