We are discussing Rule 10C-1, the rule designed to implement the requirements in Dodd-Frank with respect to compensation committees of the board.  The rule is discussed in Exchange Act Release No. 67220 (June 20, 2012).

Director compensation has become an increasingly important issue to investors.  The Commission in 2006 required companies to disclose total compensation paid to directors.  In some cases, the amount paid has approached or exceeded $1 million.  Shareholders have submitted proposals calling for an advisory vote on director compensation (say on director pay). 

The compensation committee reforms recently adopted by the Commission expanded the disclosure requirements applicable to compensation consultants used in determining directors fees.  Item 407 of Regulation S-K already required disclosure of the role played by compensation consultants in the determination of director fees.  The SEC, however, amended the provision to require disclosure of any conflict posed by the consultant and the manner in which the conflict was "being addressed."  Said another way, Item 407 applies "the compensation consultant conflict of interest disclosure requirement to director compensation in the same manner as executive compensation."  Exchange Act Release No. 67220 (June 20, 2012).

The effect of the requirement is to ensure that compensation committees consider the factors set out in 10C-1 when retaining a consultant for use in determining director fees.  It is, therefore, a disclosure requirement that will alter substantive behavior.  This is not the first or the last time disclosure has been used in this fashion.  See Essay: Corporate Governance, the Securities and Exchange Commission, and the Limits of Disclosure.