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COMPENSATION COMMITTEE REQUIREMENTS (continued)
advisory or other compensatory fee paid
by the company to such director; and
• whether such director is affiliated with the
company, a subsidiary of the company or
an affiliate of a subsidiary of the
company. 114
When considering the sources of a director’s
compensation in determining his
independence for purposes of compensation
committee service, the board should consider
whether the director receives compensation
from any person or entity that would impair
his ability to make independent judgments
about the company’s executive compensation.
Similarly, when considering any affiliate
relationship a director has with the company,
a subsidiary of the company, or an affiliate of
a subsidiary of the company, in determining
his independence for purposes of
compensation committee service, the board
should consider whether the affiliate
relationship places the director under the
direct or indirect control of the company or its
senior management, or creates a direct
relationship between the director and
members of senior management, in each case
of a nature that would impair his ability to
make independent judgments about the
company’s executive compensation. 115
In determining whether a director is eligible
to serve on the compensation committee, a
company’s board also must consider whether
the director is affiliated with the company, a
subsidiary of the company or an affiliate of a
subsidiary of the company to determine
whether such affiliation would impair the
director’s judgment as a member of the
compensation committee. 116 It may be
appropriate for certain affiliates, such as
representatives of significant stockholders, to
serve on compensation committees since their
interests are likely aligned with those of other
stockholders in seeking an appropriate
executive compensation program. 117
One non-independent director who is not an
officer or employee or a family member of an
officer may serve on the compensation
committee (of at least three members) for a
period of no longer than two years if the
board of directors, under “exceptional and
limited circumstances,” determines that
membership on the committee by that person
is in the best interests of the company and its
shareholders. A company that relies on this
exception must disclose either on the
company’s website or in the annual proxy
statement (or, if the company does not file a
proxy statement, in its annual report on Form
10-K) the nature of the relationship and the
reasons for the determination. The company
must also provide the disclosure required by
Instruction 1 to Item 407(a) of Regulation S-
K in its proxy statement or annual report
regarding its reliance on this exception.
Cure. Beginning the earlier of the first
annual meeting after January 15, 2014, or
October 31, 2014, if a company fails to
comply with the compensation committee
composition requirements because a member
of the compensation committee ceases to be
independent for reasons outside the member's
Cure. Beginning the earlier of the first
annual meeting after January 15, 2014, or
October 31, 2014, if a company fails to
comply with the compensation committee
composition requirement due to one vacancy,
or one compensation committee member
ceases to be independent due to circumstances
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