On January 11, the Securities and Exchange Commission approved final amendments to listing standards submitted by NYSE Regulation, Inc. and NASDAQ Stock Market LLC with regard to the independence of compensation committees and the authority to retain and independence of, compensation consultants and other compensation advisers. The adoption of these listing standards was mandated by Rule 10C-1 under the Securities Exchange Act of 1934.

In general, the listing standards require a listed company to have a compensation committee with specific responsibilities and authority to engage a compensation consultant, independent legal counsel or other advisers; to be provided sufficient funding for that purpose; and to select such compensation legal counsel or other adviser only after taking into consideration a list of enumerated independence factors. The final amendments submitted by both the NYSE and NASDAQ make clear that a compensation committee is not required to conduct the independence assessment with respect to a compensation adviser that acts in a limited role, providing information that is either not customized for a particular company or that is customized based on parameters that are not developed by the adviser and about which the adviser does not provide advice or with respect to an adviser whose role is limited to consulting on any broad based plan that does not discriminate in scope, terms or operation in favor of executive officers or directors of the listed company, and that is available generally to all salaried employees.

These exceptions are identical to the current language in the SEC’s Regulation S-K Item 407(e)(3)(iii), which exempts those specific categories of compensation advisers from the disclosure requirements of that provision.

In addition, the NYSE amendment clarified that while the compensation committee is required to consider the independence of compensation advisers, the compensation committee is not precluded from selecting or receiving advice from compensation advisers that are not independent. The NASDAQ listing standards had already included such a provision.

For both NASDAQ and the NYSE these listing standards will become effective beginning on July 1, 2013.

The NASDAQ rule approval is available here.

The NYSE rule approval is available here.