The Nasdaq listing requirement will require companies to have a compensation committee of at least two independent directors. Although Nasdaq currently provides an alternative where compensation matters could be handled by the independent directors as a group, most Nasdaq-listed companies already have a compensation committee with at least two independent directors.
Pursuant to the Nasdaq rules, the compensation committee must have a formal written charter. The charter would have to reflect the committee’s responsibilities, including structure, processes and membership requirements, as well as the committee’s responsibility for determining (or recommending to the board of directors for determination) the compensation of the company’s chief executive officer and all other executive officers of the company. The charter also would need to specify that the company’s chief executive officer may not be present during voting or deliberations on his or her compensation. And finally, the committee charter must specify the specific committee responsibilities and authorities to retain compensation consultants, legal counsel and offer advisers, at company expense, and to consider adviser conflicts. The committee is required to review and reassess the adequacy of the charter on an annual basis.
Pursuant to the NYSE rules, the compensation committee charter must be amended to reflect the rights and responsibilities of the compensation committee under the Dodd-Frank compensation committee rules. Although most NYSE-listed company charters already reflect the committee authority to retain consultants, counsel and advisers, most charters will need to be amended with respect to committee consideration of adviser conflicts.