Nasdaq Proposes Tweaks to Independence Requirements for Compensation Committee Members

December 2, 2013

On November 26, 2013, the Nasdaq Stock Market filed a proposal to amend its listing rules implementing Rule 10C-1 of the Securities Exchange Act of 1934, governing the independence of compensation committee members. Currently, Nasdaq Listing Rule 5605(d)(2)(A) and IM-5605-6 employ a bright line test for independence that prohibits compensation committee members from accepting directly or indirectly any consulting, advisory or other compensatory fees from the company or any subsidiary subject to certain exceptions. Based on the potential burden the bright line approach places on companies’ ability to recruit eligible directors, Nasdaq has proposed to replace this rule and its exceptions with a requirement that all compensation received from a company be considered in the independence determination. Separately, Nasdaq has also proposed some minor revisions to the affiliation prong of the compensation committee independence test under Rule 10C-1, which requires that consideration be given in independence determinations to whether a compensation committee member is affiliated with the issuer, a subsidiary of the issuer or an affiliate of a subsidiary of the issuer. All of these changes would align Nasdaq’s approach to compensation committee independence with that employed by the NYSE. The attached memo summarizes the proposed changes in greater detail.