Action Items for Smaller Reporting Companies: Nasdaq Changes Compensation Committee Requirements

Corporate Attorney Daniele Ouellette LevyBy: Daniele Ouellette Levy

The SEC recently approved changes to Nasdaq’s corporate governance requirements regarding compensation committees. These changes apply to any company whose stock is listed on Nasdaq – with certain significant exceptions. Smaller reporting companies, or SRCs, are exempt from many, but not all, of the new requirements. Here is a brief summary of how the changes will affect SRCs.

All Nasdaq listed companies, including SRCs, are now required to have a compensation committee consisting of at least two members each of whom qualify as independent under Nasdaq’s current listing standards. The compensation committee must adopt a formal written charter which includes specific provisions noted here:

  • the scope of the compensation committee’s responsibilities, and how it carries out those responsibilities, including structure, processes and membership requirements;
  • the compensation committee’s responsibility for determining, or recommending to the board for determination, the compensation of the chief executive officer and all other Executive Officers of the Company; and
  • that the chief executive officer may not be present during voting or deliberations on his or her compensation.

Alternatively, in the absence of a compensation committee charter, a SRC may have the Board adopt resolutions specifying the committee’s responsibilities and authority. The compensation committee is required to review and reassess its charter on an annual basis.

Action Item: SRCs that do not have a compensation committee should begin identifying potential compensation committee members.

Action Item: SRCs who do not have a compensation committee charter should begin drafting a charter. SRCs who already have a charter in place should review their charter to determine whether modifications are required.

SRCs have until the earlier of their first annual meeting after January 14, 2014, or October 31, 2014 to comply with the provisions set forth above, Each listed company must certify to Nasdaq that it has met the requirements described above no later than 30 days after such date.

For more information on this topic, please contact Daniele Levy.

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