New NYSE And NASDAQ Listing Standards Approved: Compensation Committee Independence, Compensation Adviser Engagement And Independence

On January 11, 2013, the U.S. Securities and Exchange Commission (the "SEC") approved new listing standards submitted by the New York Stock Exchange ("NYSE") and the NASDAQ Stock Market ("NASDAQ") concerning the independence of compensation committee members and the engagement and independence of compensation advisers. The new listing standards were required by the Dodd-Frank Act and the SEC rules adopted under the Dodd-Frank Act on June 20, 2012 (the "SEC Rules").

As approved, the new listing standards of the NYSE (the "NYSE Rules") and NASDAQ (the "NASDAQ Rules") are nearly identical to the new listing standards initially proposed by the NYSE and NASDAQ on September 25, 2012.

Effective Date

The NYSE Rules will be effective on July 1, 2013, although companies are not required to comply with the NYSE Rules concerning the independence of compensation committee members until the earlier of (i) the first annual meeting held after January 15, 2014 or (ii) October 31, 2014.

The NASDAQ Rules also will be effective on July 1, 2013, although companies are not required to comply with the NASDAQ Rules concerning the independence of compensation committee members, and the requirement that companies have a formal compensation committee and written compensation committee charter, until the earlier of (i) the first annual meeting held after January 15, 2014 or (ii) October 31, 2014. In connection with these changes, NASDAQ-listed companies are required to certify to NASDAQ, no later than 30 days after the final applicable implementation deadline, that they have complied with the new compensation committee composition and charter requirements.

Compensation Committee Independence

Both the NYSE Rules and the NASDAQ Rules require listed companies to specifically consider additional information when making independence determinations for compensation committee members. In addition, the NASDAQ Rules impose a new objective independence requirement that must be met by compensation committee members.

NYSE Rules

The NYSE Rules do not make any changes in the objective independence requirements for compensation committee members, but they do specifically require the board of directors to consider certain information when making independence determinations for compensation committee members. The NYSE Rules require boards of directors, when making these determinations, to consider all factors specifically relevant to determining whether a director has a relationship to the listed company that 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:

the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the listed company to such director; and whether such director is affiliated with the listed company, a subsidiary of the listed company or an affiliate of a subsidiary of the listed company. With respect to a director's affiliation with the listed company, the NYSE clearly stated that it believed share ownership served to align directors' interests with those of unaffiliated shareholders and would not adversely affect a director's ability to be independent from management as a compensation committee member. Additionally, the commentary to the NYSE Rules indicates that the board should consider whether an affiliate relationship places a compensation committee member under the direct or indirect control of the listed company or its senior management, or creates a direct relationship between the director and members of senior management, in each case of a nature that would impair his or her ability to make independent judgments about the listed company's executive compensation. As a result, it is clear that having a director who was also a large shareholder or was affiliated...