Final Stock Exchange Rules for Compensation Committees and Advisers: SEC Approves NYSE and Nasdaq Revised Listing Standards; Board Action Required by July 1, 2013 with Regard to Compensation Committee Authority over Compensation Advisers

Sullivan & Cromwell LLP - January 25, 2013

On January 11, 2013, the SEC approved revisions to the equity listing standards of the New York Stock Exchange, the Nasdaq Stock Market and a number of other exchanges relating to compensation committee and compensation adviser independence. These revisions were proposed by the exchanges in September 2012 in response to SEC rules issued under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the final NYSE and Nasdaq rules, all U.S.-listed companies must expand the authority of their compensation committees with respect to the oversight of compensation consultants, outside legal counsel and other advisers to the committee by July 1, 2013, and thereafter a compensation committee may select or receive advice from an adviser only after conducting an independence assessment.

The primary difference between the proposed rules and the final rules, other than the alignment of effective dates, is that the final NYSE and Nasdaq rules do not require the compensation committee to assess independence in the case of a compensation adviser that merely consults on broad-based plans or provides non-customized or issuer-specified information.

Consistent with the proposed rules, compensation committee members of both NYSE- and Nasdaq-listed companies will be subject to enhanced independence standards and the Nasdaq rules will, for the first time, require listed companies to have a standing compensation committee and written compensation committee charter. The Nasdaq compensation committee independence rules are more restrictive than the NYSE rules in that the receipt by a compensation committee member of compensatory fees from the company (other than for board service or fixed amounts under a retirement plan that are not contingent on future service) will be a bar to independence under the Nasdaq rules, but will only be a factor for the board to consider under the NYSE rules.

The rules relating to compensation committee authority and responsibilities, including assessing the independence of advisers, will take effect on July 1, 2013, and by that date NYSE-listed companies must update their compensation committee charters to reflect the committee’s increased authority and responsibility. The remaining provisions of the rules, including Nasdaq’s requirement that issuers have a standing compensation committee and written compensation committee charter and the NYSE and Nasdaq independence rules for compensation committee members, will take effect on the date of the Company’s 2014 annual meeting or, if earlier, October 31, 2014.