Tuesday, February 15, 2011

NYSE Clarifies Dodd-Frank Mandate on Voting Uninstructured Shares on Executive Compensation

In its 2011 corporate governance letter to domestic listed company executives, NYSE Regulation noted that Section 957 of the Dodd-Frank Act required each national securities exchange to amend its rules to prohibit member organizations from voting shares without specific client instructions in matters related to executive compensation. The NYSE advised companies on August 4, 2010 that members would be prohibited from voting uninstructed shares at all meetings held after July 21, 2010 if the matter to be voted on relates to executive compensation.

The letter also said that proposals that are included on proxy statements that involve executive compensation matters, even if they also apply to employees below executive level, will be treated as “May Not Vote” matters, including in those cases where member organizations have previously been allowed to vote uninstructed shares, such as with respect to some plans put to a stockholder vote in order to rely on the performance-based compensation exception to the $1 million annual deduction limit under Section 162(m) of the Internal Revenue Code. Similarly, “say on pay”, “say when on pay”, “say on golden parachute” and other executive compensation proposals will be treated as “May Not Vote” matters.

Dodd-Frank also includes similar provisions that prohibit voting of uninstructed shares by member organizations in the election of directors, excluding companies registered under the Investment Company Act, and in other matters as determined by the SEC. NYSE Rule 452 had previously been amended to eliminate broker voting in connection with the election of directors, effective for annual or special meetings as of January 1, 2010. This rule change excluded companies registered under the Investment Company Act.

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