Summer deadline looms for new compensation committee action

The SEC in January approved final rules proposed by the NYSE and Nasdaq in response to the SEC implementation of Section 952 of Dodd-Frank, which addressed the need for more independent compensation committees across the corporate landscape.

As noted in an alert from Bingham, the NYSE and Nasdaq have harmonized their compliance deadlines, adopting a two-step approach under which some requirements must be satisfied by July 1, 2013, and others by at least October 31, 2014. The exchanges differ, however, in which requirements must be satisfied by which deadline. Both SROs address the following:

• Compensation committee member independence. Both have added two new "factors" to determine independence: the source of the member's income and any affiliation with the company or related units. The NYSE requires mere consideration of these criteria, while the Nasdaq will bar some if these factors are an issue.

• Compensation committee authority and responsibility for the hiring advisers. Both SROs give compensation committees the right to hire such advisors.

• The independence of advisers. "Both the NYSE and Nasdaq rules require consideration by the compensation committee only of the six 'independence' factors specified by the SEC rules before the committee decides to engage or obtain advice from a compensation adviser. Both rules state clearly that the committee is free to take advice from any adviser, whether independent or not. The compensation committee must, however, consider these factors when engaging both compensation consultants and outside legal advisers and also when receiving advice from consultants or legal advisers engaged by management."

Some boards may have acted on these looming requirements. Others will have to act quickly to effect necessary changes, which will likely not prove to be overly onerous.

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