United States: NYSE And NASDAQ Compensation Committee And Compensation Advisers Listing Standards

Last Updated: January 28 2013
Article by Robert A. Friedel, David M. Kaplan and Randall I. Cherkas

Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act) provides standards and disclosure requirements related to the independence of compensation committees and their retained advisors. To implement Section 952 of the Act, the Securities and Exchange Commission (SEC) issued final rules on June 21, 2012 directing national securities exchanges and associations (e.g., the New York Stock Exchange (NYSE) and NASDAQ) to adopt new listing standards. On January 11, 2013, the SEC approved NYSE and NASDAQ rule changes that were proposed in response to the SEC rules. The following is a brief description of the applicable SEC final rules and corresponding new NYSE and NASDAQ listing standards:

  • Compensation Committee Independence. The SEC's final rules mandate that compensation committees will be required to include only "independent" directors. In determining an individual's independence, the applicable securities exchange or association is required to take into account relevant factors, including at least:

    • the sources of compensation for each compensation committee member, including any consulting, advisory, or other compensatory fee paid by the company, and
    • whether the compensation committee member is affiliated with the company, or a subsidiary or affiliate of the company.

The new NYSE and NASDAQ listing standards require boards to consider a director's compensation sources and affiliations, in addition to satisfying the stock exchanges' existing categorical independence standards.

    • The new NYSE listing standards require boards to consider compensatory payments to compensation committee members (other than for board and committee service) and a member's affiliate status with the company when determining that member's "independence," without prohibiting compensatory payments or providing distinct prohibitions on stock ownership as it relates to affiliate status.
    • The new NASDAQ listing standards would prohibit compensatory payments to independent compensation committee members (other than director fees or deferred compensation payments from prior service at the company), but like the new NYSE listing standards, they would provide flexibility with respect to stock ownership as it relates to affiliate status.

    The new NYSE and NASDAQ listing standards suggest that ownership of even a substantial amount of stock of the company by a compensation committee member may be beneficial, which is in contrast to the independence requirements for audit committee members, where material stock holdings of the company can bar a finding of independence.

    Prior to the adoption of the new rules, the NYSE listing standards required listed companies to have a compensation committee comprised of independent directors, which determines and approves CEO compensation and which either approves or makes recommendations to the board with respect to non-CEO executive officer compensation, and no changes have been made to this aspect of the NYSE rules. Prior to the adoption of the new NASDAQ listing standards, applicable decisions or recommendations concerning CEO or non-CEO executive officer compensation were required to be made either by a compensation committee comprised solely of one or more independent directors or by a majority of the independent directors of the board. The new NASDAQ rules now require that such decisions or recommendations be made by a compensation committee comprised solely of at least two independent directors.

  • Hiring and Oversight of Compensation Consultants, Legal Counsel and Other Advisers to the Compensation Committee. The SEC's final rules provide that before hiring or receiving advice from compensation advisers (e.g., compensation consultants, legal counsel and other compensation advisors), the compensation committee must consider their "independence." However, the new NYSE and NASDAQ listing standards both explicitly note that this requirement does not prohibit a compensation committee from selecting or receiving advice from compensation advisers that are not independent. The compensation committee is directly responsible for the appointment, compensation, and oversight of all compensation advisers.

Accordingly, in selecting a compensation adviser, the compensation committee must consider the following six "independence" factors:

  • whether other services are provided to the company by the compensation adviser or entity that employs such advisor (the Consulting Firm)
  • the amount of fees received from the company by the Consulting Firm, as a percentage of such entity's total revenue
  • whether there are any policies of the Consulting Firm designed to prevent conflicts of interest
  • whether the compensation adviser has any business or personal relationship with a member of the compensation committee
  • whether the compensation adviser owns any company stock, and
  • whether the compensation adviser or Consulting Firm has any business or personal relationship with a company executive officer.

Tracking a pre-existing exception to the requirement for proxy disclosure of a compensation consultant's role in determining or recommending the amount and form of executive and director compensation, a compensation committee is NOT required to conduct the independence assessment of a compensation adviser (see above) whose role is limited to:

    • consulting on any broad-based plan that does not discriminate in scope, terms, or operation, in favor of executive officers or directors, and that is available generally to all salaried employees, or
    • providing information that either is not customized or that is customized based on parameters that are not developed by the adviser, and about which the adviser does not provide advice.

  • Compensation Consultant Disclosures. Companies subject to the federal proxy rules are already required to disclose information about their use of compensation consultants, including specific information about fees paid to consultants in accordance with SEC regulations. However, the SEC final rules require that any company proxy or consent solicitation materials for an annual shareholder meeting occurring on or after January 1, 2013 must disclose:

    • whether the work of the compensation consultant raised any "conflicts of interest," and
    • if a "conflict of interest" is raised, the nature of such conflict and how it is being addressed.

While the SEC has not defined what would constitute a "conflict of interest," the final rules provide that the same six factors for considering compensation adviser independence (see above) should be considered in determining whether a "conflict of interest" exists.

  • Smaller Reporting Company Exception. Smaller reporting companies (i.e., companies with less than $75 million of public equity float) are exempt from (i) the new requirement to consider the independence of compensation advisors and (ii) the new rules requiring compensation committee members to comply with the heightened independence requirements over and above the pre-existing NYSE or NASDAQ categorical independence standards.

  • Effective Dates. The new requirements described above mandating disclosure of conflicts of interest raised by the work of any compensation consultant are immediately effective. NASDAQ and NYSE rules on requiring compensation committees to evaluate a compensation adviser's independence will take effect on July 1, 2013. The enhanced NASDAQ and NYSE compensation committee independence requirements will apply on the earlier of a company's 2014 annual shareholder meeting or October 31, 2014.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Randall I. Cherkas
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions