SEC Votes 5-0 to Seek Comment on Compensation Committee Rule

The U.S. Securities and Exchange Commission voted to seek comment on a measure that would require public companies to disclose possible conflicts of interest for company board members and consultants who set executives’ pay.

SEC commissioners voted 5-0 to approve the measure, part of the agency’s rulemaking under the Dodd-Frank Act, at a meeting in Washington today. The proposal expands on a 2009 rule that requires disclosure of similar conflicts.

Dodd-Frank, the regulatory overhaul enacted in July, took aim at executive compensation after lawmakers faulted incentives that rewarded risk-taking for helping to spark the subprime mortgage crisis. Groups including labor unions have urged regulators to tighten rules for consultants, saying they may recommend larger payouts for top executives to win business.

Under the SEC’s proposal, each member of a compensation committee would also have to be an independent member of the board of directors, the agency said in a statement. When employing a pay adviser, a firm would need to consider whether that adviser has any personal or business relationship with a member of the compensation panel and if so, how much that person has received in fees.

The SEC is already seeking comment on a separate measure that would prohibit pay packages that might lead to “material financial loss” for companies. That rule would compel firms with more than $50 billion in assets to defer at least 50 percent of incentive-based pay for executives for three years and subject packages to possible clawbacks for company losses.

The public comment period on today’s proposed rule will last through April 29.

To contact the reporter on this story: Joshua Gallu in Washington at jgallu@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.

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