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US SEC mulls risk retention, compensation consultant rules

US SEC mulls risk retention, compensation consultant rules
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First Published: Wed, Mar 30 2011. 07 47 PM IST
Updated: Wed, Mar 30 2011. 07 47 PM IST
Washington: US securities regulators were set to propose new rules on Wednesday designed to restore lending discipline and bolster the independence of compensation committees at public companies and the consultants who serve them.
The proposals by the Securities and Exchange Commission are the latest move by the agency to implement dozens of new requirements under the Dodd-Frank Wall Street reform law.
The first proposal would require companies that bundle mortgage loans or other asset-backed securities into securities to retain a portion of the credit risk unless the loans meet strict underwriting criteria.
The plan, which is nearly identical to joint rules proposed for public comment by the Federal Deposit Insurance Corp and the Federal Reserve Board on Tuesday, would require securitizers of the loans to have “skin in the game” by keeping 5% of the credit risk.
Compensation committees and consultants
The other series of proposals to be considered on Wednesday center on a different section of the Dodd-Frank law designed to ensure compensation committees and consultants are independent by requiring stock exchanges to adopt certain listing standards.
The plan would lay out enhanced independence requirements for company compensation committees.
In determining if a board member is independent, exchanges would need to consider certain factors such as how the board member is paid and whether the person is affiliated with the company in some way.
Wednesday’s proposal would also lay out five different independence factors that compensation committees would need to consider before hiring compensation consultants from firms such as Towers Watson, Mercer and Hewitt Associates Inc.
Those factors include whether the consultant owns stock in the company and if the consultant has a business or personal relationship with a compensation committee member, among other things.
In addition the companies would need to disclose to shareholders each year if they hired compensation consultants and if so, what if any conflicts of interest may have arisen.
SEC commissioner Luis Aguilar indicated on Wednesday he hopes to hear from the public on whether the rule takes the right approach.
He said he has some concerns because the rules only apply to companies that rely on compensation committees for decisions on pay. That means the SEC rules would not apply if companies make such decisions outside of a compensation committee structure, he said.
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First Published: Wed, Mar 30 2011. 07 47 PM IST