Beginning in 2014, compensation committee members will face enhanced independence requirements under new governance listing standards for the New York Stock Exchange and Nasdaq (as well as other national exchanges). The new listing standards, recently approved by the Securities and Exchange Commission, will be in place as soon as January 15, 2014, or as late as October 31, 2014, depending on when a company holds its 2014 annual meeting of shareholders. While these implementation dates may seem far off today, companies and their counsel would be well advised to begin considering the impact the new standards may have on their committees and processes.
The new standards will differ substantially for NYSE companies and those listed on Nasdaq. For NYSElisted companies, the new standards will require that compensation committee members have no relationship with the company that is material to the member’s ability to be independent of management in connection with his or her duties as a compensation committee member. In making this determination, the board of directors will need to consider all relevant factors, including:
- the sources of compensation of the director, including consulting, advisory, or other compensatory fees paid by the company to the director; and
- whether the director is affiliated with the company or any of its subsidiaries or subsidiaries’ affiliates.
