The New York Stock Exchange (the “NYSE”) and the NASDAQ Stock Market LLC (“NASDAQ”) recently proposed modifications to their listing standards for compensation committees of equity issuers. The proposed modifications are intended to comply with the final rules adopted by the SEC in June implementing provisions of Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.1

Proposed Rules Look Like the Current Rules.

As we anticipated, the proposed revisions do not dramatically change the requirements currently being used by the NYSE and NASDAQ, with a few notable exceptions. NASDAQ has proposed to prohibit members of the compensation committee from accepting any fees or other compensation from the issuer other than fees for service on the board or a committee. NASDAQ has also proposed requirements that all listed companies have an independent compensation committee, which must operate under a formal written charter.

For your convenience, we have attached two simple charts, one showing the rules proposed by the NYSE and the other showing the rules proposed by NASDAQ.

Effective Dates.

If approved by the SEC, the NYSE rules would be effective by the earlier of:

  • the first annual meeting after January 15, 2014 or
  • October 31, 2014.

The NASDAQ rules would generally be effective by the earlier of:

  • the issuer’s second annual meeting held after the date of approval of the amended rules or
  • December 31, 2014. (However, the NASDAQ’s new rule requiring all issuers to have a compensation committee charter will be effective immediately, upon approval by the SEC).

Note that, in addition to meeting the independence requirements of the NYSE and NASDAQ, compensation committee members should also continue to be independent within the meaning of Section 16 of the Exchange Act and Section 162(m) of the Internal Revenue Code of 1984, as amended.

Reminder to Disclose Conflicts of Interest in Upcoming Proxy.

In addition to the NYSE and NASDAQ proposed rules, we would also like to remind you that, beginning with proxy statements for annual meetings that occur on or after January 1, 2013, SEC rules will now require additional disclosure regarding an issuer’s use of compensation consultants and any related conflicts of interest, whether or not the issuer is listed on the NYSE or NASDAQ. An issuer will be required to disclose if the consultant played any role in determining or recommending the amount or form of executive or director compensation, regardless of whether the consultant was retained by management or the compensation committee or any other board committee. The issuer will also be required to disclose whether the work of the consultant raised any conflict of interest and, if so, a description of the specific conflict and how the conflict was addressed. When determining whether a conflict of interest exists, the issuer must consider all relevant factors, including, but not limited to, six SEC-mandated factors.2

NYSE PROPOSED MODIFICATIONS

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NASDAQ PROPOSED MODIFICATIONS

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