The New York Stock Exchange, the Nasdaq Stock Market and other US stock exchanges have adopted new compensation committee listing standards to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act and related SEC Rule 10C-1. Among other matters, the new NYSE listing standards heightened the independence requirements for compensation committee membership and added to the requirements for compensation committee charters. In addition, Nasdaq created a requirement that Nasdaq-listed companies have a compensation committee and a compensation committee charter with specified requirements; Nasdaq also established heightened independence requirements for compensation committee members. Many public companies will need to amend their compensation committee charters to comply with the new listing standards, and to the extent that they do not currently have a compensation committee and related compensation committee charter, will need to create them.
The listing standards requiring compensation committees to consider independence factors with respect to compensation advisers become effective July 1, 2013, but companies have until the earlier of their first annual meeting after January 15, 2014, or October 31, 2014 to comply with the new compensation committee member independence requirements.
As a result of these new standards, public companies will need to adopt amendments to their compensation committee charters prior to July 1, 2013.1 At the same time, companies may want to review their independence standards or governance guidelines in order to address the new compensation committee independence rules (especially if such standards and guidelines already address the independence standards that are specific to audit committee members).
To the extent that compensation committee charters or independence standards are amended in advance of the applicable NYSE or Nasdaq effective or compliance dates, companies may want to specify effective dates for the applicable provisions to get the benefit of the transition periods to which they are entitled under the applicable stock exchange rules.
For more information regarding the compensation committee listing standards see our Legal Update dated January 30, 2013 entitled “SEC Approves Compensation Committee Listing Standards.”
If you have any questions about compensation committee charters or the new listing standards, please contact the author of this Legal Update, Laura D. Richman, at +1 312 701 7304, or any other member of our Corporate & Securities practice.
1 Nasdaq companies that do not yet have a compensation committee charter have to apply specified new responsibilities to the compensation committee or, in the case of companies that do not yet have a compensation committee, to Independent Directors acting in lieu of a compensation committee, by July 1, 2013; these companies will need to adopt compensation committee charters by the earlier of their first annual meeting after January 15, 2014, or October 31, 2014.