November 27, 2018

NYSE Updates Smaller Reporting Company Exemption

The New York Stock Exchange (NYSE) has filed an amendment that will change the threshold for exemptions from NYSE compensation committee requirements for smaller reporting companies (SRCs) under Section 303A.00 of the NYSE Listed Company Manual (NYSE Manual). The NYSE amendment will conform eligibility for these exemptions to the revised definition adopted by the Securities and Exchange Commission (SEC) earlier this year. The SEC published the NYSE amendments on November 6, 2018, and the amendments became effective on November 26, 2018.

As described in an earlier Goodwin client alert, the cap on public float for SRC status increased from less than $75 million to less than $250 million effective September 10, 2018. Under the amended SRC definition, companies with less than $100 million in annual revenues will also qualify as SRCs if they have either no public float or a public float less than $700 million.

NYSE rules provide certain exemptions from NYSE compensation committee requirements for SRCs. Listed companies that qualify as an SRC are exempt from compliance with:

  • the requirements with respect to the independence of compensation committee members set forth in Section 303A.02(a)(ii) and the second paragraph of the Commentary to Section 303A.02(a) of the NYSE Manual; and
  • the requirements of Section 303A.05(c)(iv) of the NYSE Manual with respect to the analysis of the independence of any compensation consultant, legal counsel or other advisers to the compensation committee.

SRCs must comply with all other applicable NYSE corporate governance requirements, including all other applicable compensation committee requirements.

Companies should note that, under SEC rules, if a company fails to meet the requirements for SRC status as of the last business day of its second fiscal quarter (the SRC Determination Date), it will cease to be an SRC as of the beginning of the following fiscal year. Under NYSE rules, the compensation committee of a company that has ceased to be an SRC must comply with Section 303A.05(c)(iv) starting six months after it ceases to be an SRC and must have:

  • one member of its compensation committee who meets the independence standard of Section 303A.02(a)(ii) and the second paragraph of the commentary to Section 303A.02(a) of the NYSE Manual within six months after that date;
  • a majority of directors on its compensation committee meeting those requirements within nine months after that date; and
  • a compensation committee comprised solely of members who meet those requirements within 12 months after that date.