KMK Law Corporate & Securities Blog

In January 2013, the SEC approved the new listing standards proposed by Nasdaq for independent compensation committees and compensation consultants, legal counsel and other advisors. These new listing standards, adopted as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act and new SEC Rule 10C-1 under the Securities Exchange Act of 1934, are designed to promote the independence of compensation committee members, consultants and advisors.

Listed companies will have until the earlier of their first annual meeting after January 15, 2014, or October 31, 2014, to comply with compensation committee member independence requirements, as well as all other provisions of the new listing standards.

A company must certify to Nasdaq, no later than 30 days after the final implementation deadline applicable to it, that it has complied with the amended listing rules relating to compensation committees. In particular, the company must certify that it has adopted a formal written compensation committee charter and that the compensation committee will review and reassess the adequacy of the formal written charter on an annual basis. Additionally, the company must certify that it has, and will continue to have, a compensation committee of at least two members, each of whom: (i) is an independent director as defined under Rule 5605(a)(2); and (ii) has not accepted directly or indirectly any consulting, advisory or other compensatory fee from the company or any subsidiary thereof. The company must also certify that in determining whether a director is eligible to serve on the compensation committee, the company’s board has considered, and will continue to consider, whether the director is affiliated with the company, a subsidiary of the company, or an affiliate of a subsidiary of the company to determine whether such affiliation would impair the director’s judgment as a member of the compensation committee.

The certification is a one-time certification, which will be available electronically through Nasdaq’s Listing Center website, no later than January 15, 2014. An officer of the company must submit the certification.

Note that even if a company is exempt from the key independence requirements as a “Smaller Reporting Company” or “Foreign Private Issuer,” it must file the certification form to indicate that it is exempt. However, the following companies are exempt from Rule 5605(d) and thus exempt from the certification requirement: asset-backed and other passive issuers, cooperatives, limited partnerships and management investment companies registered under the Investment Company Act of 1940.