Friday, May 06, 2011

In Letter to SEC, CalPERS Asks that Exchanges Not Be Allowed to Establish Differing Independence Standards for Compensation Committees

While supporting the Dodd-Frank mandate that company compensation committees must be full independent, the nation's largest public pension fund said that exchanges should not be permitted to establish their own independence standards for compensation committees as part of their listing standards. In a letter to the SEC, which is crafting regulations implementing this Dodd-Frank mandate, CalPERS said that applying a consistent definition of independent director for all exchanges to follow is preferable for the purpose of providing a consistent listing standard for all publicly traded companies.

The public pension fund also believes that the definition of independence should include any relationship that may impair a
director's objectivity whether in appearance or in fact. Transparent robust disclosures on tenure, employment, compensation, family and other affiliations, including interlocking relationships with parent or subsidiaries must be consistently defined. Boards must embrace and disclose independence, emphasized CalPERS, which requires a lack of conflict between a director's personal, financial or professional interests which should be aligned with the best interests of shareowners.

CalPERS also suggested that the regulations compensation committees be given the same opportunity to cure violations of the independence requirements as those adopted for audit committee members. This would occur in the rare situation where a member ceases to be independent for reasons outside the director's reasonable control. For example, when a director that is a partner in a law firm that provides no services to the listed issuer, but the listed issuer acquires another company that is one of the law firm's clients. Without an opportunity to cure such a defect, the board member would cease to be independent.

CalPERS supports proposed SEC Rule 1OC-1 (b) which would direct the exchanges to adopt listing standards that would be applicable to any committee of the board that oversees executive compensation, whether or not the committee performs
multiple functions and/or is formally designated as a "compensation committee."

The pension fund also asked that the Commission not exempt from the compensation committee independence any requirement any exchange or association or any foreign private issuers or smaller reporting companies. Currently. the SEC is proposing that foreign private issuers providing annual disclosure to shareholders of the reasons why the foreign private issuer does not have an independent compensation committee would be exempt from the compensation committee independence
requirements.

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