In a move that further weakens executives' influence overthe setting of their compensation, public companies will soon facenew requirements that they disclose any conflicts of interestinvolving their compensation consultants in their proxystatements.

The Securities and Exchange Commission mandated that U.S. stockexchanges propose new listing standards to that effect thisSeptember, standards that are to take effect next June.

Robin Ferracone, CEO of the executive compensation consultancyFarient Advisors, says the new standards are no surprise. “The SECdidn't depart much from what the Dodd-Frank Financial Reform Actcalled for so my sense is that most of this has already been takeninto account by public company boards.”

“Dodd-Frank has already had a significant impact on executivecompensation,” Ferracone adds. “This is another step in shiftingthe power over executive compensation into the hands of the boardcompensation committees, and not the executives, because with thesenew standards, there is no ambiguity about who the executiveconsultants are working for: it's the compensation committees.”

Most companies and executive compensation consultancies havelong known the new regulations were coming, agrees Amy Seidel, apartner with the Minneapolis law firm of Faegre Baker Daniels.“These new rules have been a long time in the making, and this alsotracks what was done with respect to insuring the independence ofaudits.”

Seidel says most of the large compensationconsultants that were units of bigger organizations, which mighthave posed conflicts because of work the parent did for the samecorporate clients, have already been spun off as independentcompanies. “We've seen a lot of cleaning up of the compensationconsulting business,” she says.

The new rules being developed by the exchanges for their listedcompanies are “about disclosure, not about prohibiting usingspecific consultancies,” Seidel stresses, and says there's a goodreason for this. “There's a finite number of consultancies and soactually the prospect of various potential conflicts of interestare quite significant.”

The fact that a conflict or potential conflict might exist—likea board of director's compensation committee employing aconsultancy where a relative of one of the company's top executivesor of a member of the board works—doesn't mean the company can'tuse the consultancy. Rather, the company would have to include anote on that relationship in its proxy, along with an explanationof why it felt the relationship would not pose a problem orinterfere with the consultancy's ability to act independently.

Given the amount of controversy among shareholders aboutexecutive compensation packages and the concern expressed byregulators, Seidel says most companies have been acting toeliminate potential conflicts, including changing consultants whenconflicts have been identified. “I think with these new rules,there will be fairly few board discussions about relationships thathad not been known about already,” she says.

Deborah Lifshey, managing director of the executive compensationconsultancy Pearl Meyer Partners in New York City, says one resultis that board compensation committees are “asking to see theconsultants' conflict-of-interest policies.”

“They want to know if we have one, and how we're dealing withthe issues raised by the SEC. They want to see it on paper and seeit all laid out and defined,” Lifshey says. “More and more, theyalso want to see an independence certification letter from us on anannual basis.”

For a look at whether a proposed audit standard onrelated-party transactions will focus more attention on executivecompensation, see AuditEye on Executive Pay. And for a look at CFO compensation,see Treasury & Risk's 2012 survey on CFO pay.