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. In November 2013, NASDAQ amended those listing standards and required companies to certify their company’s compliance with, or exemption from, these amended compensation committee listing rules. In January 2014, NASDAQ released the certification form. The certification must be provided to NASDAQ no later than 30 calendar days after the company’s first annual shareholder’s meeting occurring after January 15, 2014, or October 31, 2014, whichever is earlier.

The following categories of companies are exempt from all of the new compensation committee requirements, although they must complete the certification to acknowledge that the company is exempt: asset-backed issuers and other passive-issuers, cooperatives, limited partnerships, management investment companies and controlled companies. Smaller reporting companies, controlled companies and foreign private issuers must submit a new certification if that status changes.

The certification requires companies to certify that the company has adopted a formal written compensation committee charter specifying the items enumerated in Rule 5605(d)(1), and that the compensation committee will review and reassess the adequacy of the charter on an annual basis. In addition, the company must certify that the company has, and will continue to have, a compensation committee of at least two members, each of whom must be an independent director as defined under Rule 5605(a)(2). The company must also certify that in affirmatively determining the independence of any director who will serve on the compensation committee, the board of directors has considered, and will continue to consider, all factors specifically relevant to determining whether a director has a relationship to the company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (i) the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the company to such director; and (ii) whether such director is affiliated with the company, a subsidiary of the company or an affiliate of a subsidiary of the company.

The certification is a one-time certification, which is now available electronically through NASDAQ’s Listing Center website. An officer of the company must submit the certification.