On January 11, 2013, the Securities and Exchange Commission (SEC) issued final orders approving The NASDAQ Stock Market (Nasdaq) and the New York Stock Exchange (NYSE) proposed listing standards relating to compensation committees and compensation consultants and advisers. Both exchanges' proposed rule changes were originally filed with the SEC on September 25, 2012. The NYSE filed Amendment No. 1 to the proposed rule change on October 1, 2012. Our October 8, 2012 alert summarizes the rule changes as proposed by both exchanges and, for the NYSE, the proposed rules as amended by NYSE Amendment No. 1.
Nasdaq. Nasdaq filed Amendment No. 1 to its proposed rule changes on December 12, 2012, and Amendment No. 2 on January 4, 2013. This update summarizes the changes made in Nasdaq's proposed listing standards, as amended by Amendments No. 1 and 2, and as approved by the SEC on January 11, 2013.
NYSE. On December 4, 2012, the NYSE filed Amendment No. 2 to the proposed rule change, which was later withdrawn. On January 8, 2013, the NYSE filed Amendment No. 3 to the proposed rule change. This update summarizes the changes made to the proposed rules in NYSE Amendment 3, as approved by the SEC on January 11, 2013.
Effect of Amendments
Nasdaq Amendment No. 1 accomplished the following:
- added specific language to proposed Rule 5605(d)(3) that sets forth detailed requirements of Rule 10C-1(b)(2)-(4) regarding the authority of the compensation committee to retain compensation advisers, the requirement that a listed company fund such advisers and the required independence assessment of such advisers
- revised the compliance dates for currently listed companies
- revised the phase-in schedule for smaller reporting companies
- added a form for companies to submit certifying their compliance
NYSE Amendment 3 and Nasdaq Amendment 2 clarified the exception to the rule which requires the compensation committee to conduct an assessment of independence of compensation advisers. Both listing standards now use the verbatim language of Item 407(e)(3)(iii) of Regulation S-K, which exempts specific categories of compensation consultants from the disclosure requirements of that provision. That exception specifically excludes from
the independence requirement advisers whose roles are limited to:
- consulting on any broad-based plan that does not discriminate in scope, terms, or operation in favor of executive officers or directors of the listed company, and that is available generally to all salaried employees, or
- providing information that either is not customized for a particular company or that is customized based on parameters that are not developed by the compensation consultant, and about which the compensation consultant does not provide advice
NYSE Amendment 3 also accomplished the following:
- revised the transition period for companies that cease to be smaller reporting companies
- added a statement in its commentary similar to one already found in the Nasdaq listing standards, which specifically notes that a company may select or receive advice from any compensation adviser it chooses (including advisers that are not independent), after considering the six independence factors set forth in the listing standards
Each Nasdaq-listed company will have until July 1, 2013, to establish a compensation committee that meets the new listing standards and to adopt a compliant committee charter. The remaining updates to the Nasdaq compensation committee and adviser standards are effective at the earlier of (i) the company's next annual meeting after January 15, 2014, and (ii) October 31, 2014.
NYSE companies will have a transition period by which to comply with the new standards for compensation committee director independence. For NYSE companies the transition period runs until the earlier of (i) their first annual meeting after January 15, 2014, and (ii) October 31, 2014. All other updates to the NYSE compensation committee and adviser standards are effective July 1, 2013.