Financial reform this week: Would companies drop compensation committees to evade SEC rule?

Introduction

Thursday is the deadline to offer suggestions on the Securities and Exchange Commission’s plan to require publicly-traded companies to disclose possible conflicts of interest for board members and for consultants hired to set top executives’ pay.

The SEC proposal has been applauded by pro-investor groups who worry that compensation consultants may be tempted to recommend higher pay packages for executives as a way to win other kinds of business from a company.

Under the proposal, every member of a company’s compensation committee would be required to be an independent member of the board of directors. When the plan was announced in March, SEC Commissioner Luis Aguilar said he supported it but questioned whether the rule might prompt some companies to dissolve their compensation committees and assign another board group to set pay issues.

“If various companies don’t have compensation committees, it could harm both shareholders and companies,” Aguilar said. “Shareholders would have the additional burden of continually monitoring how a particular company is making compensation decisions. And companies complying with the rules may find themselves at a competitive disadvantage. Neither of these results is appropriate but they are a possibility under the proposal.”

Other Congressional hearings, rulemaking deadlines and events related to the Dodd-Frank financial reform law this week:

Monday, May 16