By Cydney Posner

The SEC has approved the NYSE amendment to Rule 452 and corresponding NYSE Manual section 402.08 to prohibit member organizations from voting uninstructed shares if the matter voted on relates to executive compensation.  This action was mandated by DFA section 957, which explicitly required the elimination of broker discretionary voting on matters related to executive compensation. The commentary clarifies that a matter relating to executive compensation would include, among other things, (i) an advisory vote to approve the compensation of executives, (ii) a vote on whether to hold an advisory vote every one, two or three years, and (iii) an advisory vote to approve any type of compensation (whether present, deferred or contingent) that is based on or otherwise relates to an acquisition, merger, consolidation, sale or other disposition of all or substantially all of the assets of an issuer and the aggregate total of all that compensation that may (and the conditions upon which it may) be paid or become payable to or on behalf of an executive officer. In addition, this rule applies even if the matter would otherwise qualify for an exception from any Item under NYSE Rule 452.11 or section 402.08. The SEC notes that the NYSE's new rule has been drafted broadly, covering the specific items identified in Section 951 of the DFA, as well as any other matter concerning executive compensation. The SEC also believes the provision regarding exceptions "will make clear that any past practice or interpretation that may have permitted a broker vote on an executive compensation matter, under existing rules, will no longer be applicable and is superseded by the newly adopted provisions."

Because the DFA did not provide for any transition period, the rule change was approved on an accelerated basis; the NYSE has been treating these matters as "May Not Vote" matters since August 4, when it issued an information memo to that effect. Remember that, because this rule change applies to NYSE members, it affects all public companies, not just those companies listed on the NYSE.

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