Nasdaq Compensation Committee Independence Requirements: SEC Publishes Nasdaq Rule Change Removing Prohibition on Receipt of Compensatory Fees by Compensation Committee Members; Change Aligns Nasdaq Rule with NYSE Rule

Sullivan & Cromwell LLP - December 12, 2013

Yesterday, the Securities and Exchange Commission published immediately effective changes to the NASDAQ Stock Market Listing Rules that remove the prohibition on a compensation committee member’s receipt of compensatory fees. Instead, consistent with the New York Stock Exchange compensation committee independence requirements, the board of directors will need to consider the receipt of such fees, along with other relevant factors, when considering a director’s independence for purposes of compensation committee membership. Compensation committee members will remain subject to the broader independent director requirements, which, among other things, generally prohibit the receipt of compensation from the company in excess of $120,000 during any 12-month period within the prior three years.

The rule changes took effect immediately; however, the SEC has solicited comments on the changes due 21 days after publication in the Federal Register. Issuers must comply with the new Nasdaq compensation committee rules by the earlier of the Company’s first annual meeting after January 15, 2014, or October 31, 2014, subject to existing transition periods applicable in the case of initial public offerings, companies listing in connection with a spin-off or carve-out, companies emerging from bankruptcy, and companies that cease to qualify as controlled companies or foreign private issuers.