July 25, 2014

Deadline Approaches for Amending Compensation Committee Charters

Companies must comply with certain final NYSE and NASDAQ listing rules by July 1.

By July 1, affected companies must comply with recent amendments to the listing rules of the New York Stock Exchange (NYSE) and the NASDAQ Stock Market (NASDAQ) relating to compensation committees.[1] These changes, which were approved by the Securities and Exchange Commission (SEC) on January 11, 2013, were mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and the SEC's implementing regulations.

The following discusses the changes that listed companies must make by July 1, 2013, to comply with the new listing rules.

Changes Required for Compensation Committee Charters

As of July 1, the charter of each listed company's compensation committee must include the following provisions:

  • The compensation committee must have authority, in its sole discretion, to retain or obtain advice of a compensation consultant, independent legal counsel, or other adviser (collectively, compensation advisers).

  • The compensation committee must be responsible for the appointment, compensation, and oversight of any compensation adviser they retain.

  • The listed company must provide appropriate funding, as determined by the compensation committee, for the payment of reasonable compensation to its compensation advisers.

  • The compensation committee, before retaining any compensation adviser, must consider factors affecting his or her independence, including the following:

    • Other services provided to the listed company by the compensation adviser's firm

    • The fees the compensation adviser's firm receives from the listed company as a percentage of that firm's total revenue

    • The policies and procedures of the compensation adviser's firm that are designed to prevent conflicts of interest

    • Any business or personal relationship between the compensation adviser and a compensation committee member or an executive officer of the listed company

    • Whether the compensation adviser owns stock in the listed company

Neither the listing criteria nor the Dodd Frank Act prohibits the retention of a compensation adviser who may not be independent, and neither requires a compensation committee to follow the recommendations of a compensation adviser it retains.

Board Actions by NASDAQ-Listed Companies Without Compensation Committee Charters

By July 1, any NASDAQ-listed company that has independent directors who act in lieu of a compensation committee or a compensation committee that has no charter must provide such independent directors or compensation committee with the responsibilities and authority described above, either through a board resolution or other corporate action. These NASDAQ-listed companies do not have to comply with the new requirements relating to forming a compensation committee and adopting a charter until the earlier of their first annual meeting after January 15, 2014, or October 31, 2014.


The compensation committee listing rules of both the NYSE and NASDAQ have exemptions from some of the new criteria for controlled companies, smaller reporting companies and foreign private issuers, asset-backed issuers, limited partnerships, and management investment companies. Smaller reporting companies and foreign private issuers should review these exemptions to determine whether they need to amend their compensation committee charters.


[1]. For more information on the new listing rules, view our February 5, 2013, LawFlash, "SEC Approves Final NYSE and NASDAQ Compensation Committee Rules," available here.

David A. SirignanoGeorge G. YearsichChristopher T. JensenFinnbarr D. MurphyDavid W. PollakAllan D. ReissJames W. McKenzieThomas W. KellermanEmilio RagosaEllen S. BancroftBryan S. Gadol, and Carter Brod, also contributed to this article. 

Copyright © 2014 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

About the Author

Stephen P. Farrell, Partner, Securities Attorney, Morgan Lewis Law Firm


Steve Farrell is a partner in Morgan Lewis's Business and Finance Practice and a leader of the Securities Industry Practice. His practice focuses on a variety of domestic and international business transactions, including public and private offerings and other financing transactions, as well as mergers and acquisitions involving public companies and going-private transactions.

As part of his practice, Mr. Farrell has advised many U.S. and foreign issuers and underwriters in offerings of debt and equity securities and stock exchange listings...


About the Author


Linda L. Griggs is a partner in Morgan Lewis's Securities Practice. Ms. Griggs's practice focuses on securities regulatory matters, including financial reporting and accounting and other disclosure requirements under the securities laws and public and private securities offerings. Ms. Griggs also handles corporate law matters, including advising with respect to the fiduciary duties of directors and corporate governance matters. 


Alan Singer is a partner in Morgan Lewis's Securities Practice. Mr. Singer advises companies with regard to a diverse range of corporate and securities matters. He counsels public companies with respect to annual and periodic Securities and Exchange Commission (SEC) filings, proxy statements, executive compensation disclosure, and beneficial ownership reporting. He also provides advice to companies regarding corporate governance, compliance with stock exchange listing standards and other SEC regulatory and corporate matters. In addition, Mr. Singer has represented both companies and...


About the Author


Amy I. Pandit is a partner in Morgan Lewis's Business and Finance Practice. Ms. Pandit represents corporate clients in corporate governance, executive compensation, and in federal securities laws compliance, including in diverse and complex corporate finance transactions, such as public offerings of equity and debt securities, private placements, venture financings, and mergers and acquisitions.

Ms. Pandit has experience representing publicly traded corporations in connection with numerous corporate and securities matters. She has also assisted clients with...


About the Author


Iain Wright is a partner in Morgan Lewis's Business and Finance Practice. Iain specialises in advising on a wide range of corporate finance issues, with a focus on M&A and equity capital markets. In the field of M&A, he has extensive experience of both public and private M&A, both in the United Kingdom and internationally, and has advised on transactions ranging in size from a few million pounds to tens of billions of pounds, including some of the largest transactions ever effected in the UK market. In the field of equity capital markets, he has advised...

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