---
kind: "section"
citation: "15 U.S.C. § 78j–3"
title: "15"
title_heading: "Commerce and Trade"
number: "78j–3"
heading: "Compensation committees"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/15/78j-3"
units:
  - "Chapter 2B — Securities Exchanges"
---

# §78j–3. Compensation committees

- (a) **Independence of compensation committees—**
  - (1) **Listing standards—** The [Commission](/usc/15/78c.md?p=a-15) shall, by rule, direct the national [securities](/usc/15/78c.md?p=a-10) [exchanges](/usc/15/78c.md?p=a-1) and national [securities](/usc/15/78c.md?p=a-10) associations to prohibit the listing of any [equity security](/usc/15/78c.md?p=a-11) of an [issuer](/usc/15/78c.md?p=a-8), other than an [issuer](/usc/15/78c.md?p=a-8) that is a controlled [company](/usc/15/78c.md?p=a-19), limited partnership, [company](/usc/15/78c.md?p=a-19) in bankruptcy proceedings, open-ended management [investment company](/usc/15/78c.md?p=a-12-A-iii) that is registered under the Investment Company Act of 1940 [[15 U.S.C. 80a–1](/usc/15/80a–1.md) et seq.], or a foreign private [issuer](/usc/15/78c.md?p=a-8) that provides annual disclosures to shareholders of the reasons that the foreign private [issuer](/usc/15/78c.md?p=a-8) does not have an independent compensation committee, that does not comply with the requirements of this subsection.
  - (2) **Independence of compensation committees—** The rules of the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#a-1) shall require that each [member](/usc/15/78c.md?p=a-3-A) of the compensation committee of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of an [issuer](/usc/15/78c.md?p=a-8) be—
    - (A) a [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of the [issuer](/usc/15/78c.md?p=a-8); and
    - (B) independent.
  - (3) **Independence—** The rules of the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#a-1) shall require that, in determining the definition of the term “independence” for purposes of [paragraph (2)](#a-2), the national [securities](/usc/15/78c.md?p=a-10) [exchanges](/usc/15/78c.md?p=a-1) and the national [securities](/usc/15/78c.md?p=a-10) associations shall consider relevant factors, including—
    - (A) the source of compensation of a [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of an [issuer](/usc/15/78c.md?p=a-8), including any consulting, advisory, or other compensatory fee paid by the [issuer](/usc/15/78c.md?p=a-8) to such [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7); and
    - (B) whether a [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of an [issuer](/usc/15/78c.md?p=a-8) is affiliated with the [issuer](/usc/15/78c.md?p=a-8), a subsidiary of the [issuer](/usc/15/78c.md?p=a-8), or an affiliate of a subsidiary of the [issuer](/usc/15/78c.md?p=a-8).
  - (4) **Exemption authority—** The rules of the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#a-1) shall permit a national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1) or a national [securities](/usc/15/78c.md?p=a-10) association to exempt a particular relationship from the requirements of [paragraph (2)](#a-2), with respect to the [members](/usc/15/78c.md?p=a-3-A) of a compensation committee, as the national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1) or national [securities](/usc/15/78c.md?p=a-10) association determines is appropriate, taking into consideration the size of an [issuer](/usc/15/78c.md?p=a-8) and any other relevant factors.
- (b) **Independence of compensation consultants and other compensation committee advisers—**
  - (1) **In general—** The compensation committee of an [issuer](/usc/15/78c.md?p=a-8) may only select a compensation consultant, legal counsel, or other adviser to the compensation committee after taking into consideration the factors identified by the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (2)](#b-2).
  - (2) **Rules—** The [Commission](/usc/15/78c.md?p=a-15) shall identify factors that affect the independence of a compensation consultant, legal counsel, or other adviser to a compensation committee of an [issuer](/usc/15/78c.md?p=a-8). Such factors shall be competitively neutral among categories of consultants, legal counsel, or other advisers and preserve the ability of compensation committees to retain the services of [members](/usc/15/78c.md?p=a-3-A) of any such category, and shall include—
    - (A) the provision of other services to the [issuer](/usc/15/78c.md?p=a-8) by the [person](/usc/15/78c.md?p=a-9) that employs the compensation consultant, legal counsel, or other adviser;
    - (B) the amount of fees received from the [issuer](/usc/15/78c.md?p=a-8) by the [person](/usc/15/78c.md?p=a-9) that employs the compensation consultant, legal counsel, or other adviser, as a percentage of the total revenue of the [person](/usc/15/78c.md?p=a-9) that employs the compensation consultant, legal counsel, or other adviser;
    - (C) the policies and procedures of the [person](/usc/15/78c.md?p=a-9) that employs the compensation consultant, legal counsel, or other adviser that are designed to prevent conflicts of interest;
    - (D) any business or personal relationship of the compensation consultant, legal counsel, or other adviser with a [member](/usc/15/78c.md?p=a-3-A) of the compensation committee; and
    - (E) any stock of the [issuer](/usc/15/78c.md?p=a-8) owned by the compensation consultant, legal counsel, or other adviser.
- (c) **Compensation committee authority relating to compensation consultants—**
  - (1) **Authority to retain compensation consultant—**
    - (A) **In general—** The compensation committee of an [issuer](/usc/15/78c.md?p=a-8), in its capacity as a committee of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), may, in its sole discretion, retain or obtain the advice of a compensation consultant.
    - (B) **Direct responsibility of compensation committee—** The compensation committee of an [issuer](/usc/15/78c.md?p=a-8) shall be directly responsible for the appointment, compensation, and oversight of the work of a compensation consultant.
    - (C) **Rule of construction—** This paragraph may not be construed—
      - (i) to require the compensation committee to implement or act consistently with the advice or recommendations of the compensation consultant; or
      - (ii) to affect the ability or obligation of a compensation committee to exercise its own judgment in fulfillment of the duties of the compensation committee.
  - (2) **Disclosure—** In any proxy or consent solicitation material for an annual meeting of the shareholders (or a special meeting in lieu of the annual meeting) occurring on or after the date that is 1 year after July 21, 2010, each [issuer](/usc/15/78c.md?p=a-8) shall disclose in the proxy or consent material, in accordance with regulations of the [Commission](/usc/15/78c.md?p=a-15), whether—
    - (A) the compensation committee of the [issuer](/usc/15/78c.md?p=a-8) retained or obtained the advice of a compensation consultant; and
    - (B) the work of the compensation consultant has raised any conflict of interest and, if so, the nature of the conflict and how the conflict is being addressed.
- (d) **Authority to engage independent legal counsel and other advisers—**
  - (1) **In general—** The compensation committee of an [issuer](/usc/15/78c.md?p=a-8), in its capacity as a committee of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), may, in its sole discretion, retain and obtain the advice of independent legal counsel and other advisers.
  - (2) **Direct responsibility of compensation committee—** The compensation committee of an [issuer](/usc/15/78c.md?p=a-8) shall be directly responsible for the appointment, compensation, and oversight of the work of independent legal counsel and other advisers.
  - (3) **Rule of construction—** This subsection may not be construed—
    - (A) to require a compensation committee to implement or act consistently with the advice or recommendations of independent legal counsel or other advisers under this subsection; or
    - (B) to affect the ability or obligation of a compensation committee to exercise its own judgment in fulfillment of the duties of the compensation committee.
- (e) **Compensation of compensation consultants, independent legal counsel, and other advisers—** Each [issuer](/usc/15/78c.md?p=a-8) shall provide for appropriate funding, as determined by the compensation committee in its capacity as a committee of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), for payment of reasonable compensation—
  - (1) to a compensation consultant; and
  - (2) to independent legal counsel or any other adviser to the compensation committee.
- (f) **Commission rules—**
  - (1) **In general—** Not later than 360 days after July 21, 2010, the [Commission](/usc/15/78c.md?p=a-15) shall, by rule, direct the national [securities](/usc/15/78c.md?p=a-10) [exchanges](/usc/15/78c.md?p=a-1) and national [securities](/usc/15/78c.md?p=a-10) associations to prohibit the listing of any [security](/usc/15/78c.md?p=a-10) of an [issuer](/usc/15/78c.md?p=a-8) that is not in compliance with the requirements of this section.
  - (2) **Opportunity to cure defects—** The rules of the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#f-1) shall provide for appropriate procedures for an [issuer](/usc/15/78c.md?p=a-8) to have a reasonable opportunity to cure any defects that would be the basis for the prohibition under [paragraph (1)](#f-1), before the imposition of such prohibition.
  - (3) **Exemption authority—**
    - (A) **In general—** The rules of the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (1)](#f-1) shall permit a national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1) or a national [securities](/usc/15/78c.md?p=a-10) association to exempt a category of [issuers](/usc/15/78c.md?p=a-8) from the requirements under this section, as the national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1) or the national [securities](/usc/15/78c.md?p=a-10) association determines is appropriate.
    - (B) **Considerations—** In determining appropriate exemptions under [subparagraph (A)](#f-3-A), the national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1) or the national [securities](/usc/15/78c.md?p=a-10) association shall take into account the potential impact of the requirements of this section on smaller reporting [issuers](/usc/15/78c.md?p=a-8).
- (g) **Controlled company exemption—**
  - (1) **In general—** This section shall not apply to any controlled [company](/usc/15/78c.md?p=a-19).
  - (2) **Definition—** For purposes of this section, the term “controlled [company](/usc/15/78c.md?p=a-19)” means an [issuer](/usc/15/78c.md?p=a-8)—
    - (A) that is listed on a national [securities](/usc/15/78c.md?p=a-10) [exchange](/usc/15/78c.md?p=a-1) or by a national [securities](/usc/15/78c.md?p=a-10) association; and
    - (B) that holds an election for the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of the [issuer](/usc/15/78c.md?p=a-8) in which more than 50 percent of the voting power is held by an individual, a group, or another [issuer](/usc/15/78c.md?p=a-8).

## Source credit

(June 6, 1934, ch. 404, title I, § 10C, as added Pub. L. 111–203, title IX, § 952(a), July 21, 2010, 124 Stat. 1900.)

## Notes

### Editorial Notes

### References in Text

The Investment Company Act of 1940, referred to in subsec. (a)(1), is title I of act Aug. 22, 1940, ch. 686, 54 Stat. 789, which is classified generally to subchapter I (§ 80a–1 et seq.) of chapter 2D of this title. For complete classification of this Act to the Code, see section 80a–51 of this title and Tables.

### Statutory Notes and Related Subsidiaries

### Effective Date

Section effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as a note under section 5301 of Title 12, Banks and Banking.