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On June 20, 2012, in furtherance of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010, the Securities and
Exchange Commission adopted new Rule 10C-1 under the Securities
Exchange Act of 1934 and amendments to Item 407 of Regulation
S-K1 that, among other things, focused on ensuring the
independence of compensation committee members by directing the
national securities exchanges to "establish listings standards
that ... require each member of a listed issuer's compensation
committee to be ... 'independent' as defined in the listing
standards of the exchange." In response to this SEC release,
each national securities exchange in late September proposed rule
change submissions to comply with new Rule 10C-1.
The requirements of Rule 10C-1 and the proposed new listing
standards of each of the NYSE and NASDAQ are summarized below. Once
the exchanges' final listing standards are approved, we will
disseminate a comprehensive review updating this Client Alert.
2 When determining "independence" under its
current listing standards, the NYSE rules (a) require a board to
affirmatively determine that a director has no material
relationship to the company and (b) provide that a director may not
be independent if a relationship exists that would violate five
"bright line" tests.
3 When determining "independence" under its
current standards, the NASDAQ rules (a) require a board to
affirmatively determine that a director does not have a
relationship that would interfere with the exercise of independent
judgment in carrying out that director's responsibilities and
(b) provide that certain categories of director, based on certain
identified relationships, cannot be independent.
4 In adopting this approach under the proposed rules,
NASDAQ is proposing to eliminate its alternative rule that permits
a majority of independent directors, in lieu of having a standing
compensation committee, determine executive
compensation.
5 The six factors set forth in Rule 10C-1 include (i) the
provision of other services to the company by the compensation
committee adviser, (ii) the percentage of the adviser's total
revenue that is represented by the fees received from the company,
(iii) the policies and procedures of the adviser that are designed
to prevent conflicts of interest, (iv) any business or personal
relationship of the adviser with an executive officer, (v) any
business or personal relationship of the adviser with a member of
the compensation committee and (vi) any stock of the company owned
by the adviser.
6 Significantly all of Rule 10C-1's requirements in
this regard exist in the NYSE's compensation committee charter
listing standards.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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