A key question under the new standards taking effect July 1 (described in our client memo here) is whether a particular firm or person should be deemed to be serving as an adviser to the compensation committee and therefore subject to the requirement that the committee make a prior determination as to independence. Advisers retained directly by the committee are of course covered by this term, but what about advisers to the company who also provide advice to the committee? We think that a company adviser who regularly presents to the committee should be deemed an adviser to the committee, and therefore should be subject to an independence determination now. Companies should also consider making a predetermination as to other advisers who have been retained by the company and who may be called on to provide advice to the committee. The reason to consider predetermining independence now is that the determination should be made prior to the committee receiving the advice. If you would like company advisers to be able to provide advice to the committee if an unplanned situation develops during the year, predetermining independence now could avoid a scramble later.
Remember that the new rules merely require compensation committees to consider the independence of their advisers. They do not provide or imply that committees must or should retain independent advisers. Thus a finding that an adviser is not independent should not of itself impair the committees ability to rely upon the advice. Nor is any aspect of the mandated independence review required to be disclosed publicly, other than proxy disclosure concerning compensation consultants. This disclosure requirement does not apply to other advisers such as legal counsel.