What you need to know

Nasdaq and the NYSE have amended their rules to comply with broker voting restrictions set forth in the Dodd-Frank legislation.

What you need to do

Companies should reevaluate their Compensation Discussion and Analysis strategy and examine the level of broker discretionary voting in past shareholder meetings to proactively address the voting changes.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, which became law in July, required, among other things, that national securities exchanges revise their rules to prohibit brokers from voting shares they do not beneficially own, unless they have specific voting instructions from the beneficial owners, in connection with any of the following:

  • the election of directors (except for a vote with respect to the uncontested election of a member of a board of a registered investment company);
  • executive compensation proposals; and
  • any other “significant matter,” as determined by the SEC.

Nasdaq and NYSE Rule Changes

On September 21, the SEC approved, on an accelerated basis, a change to Nasdaq Rule 2251, which governs proxy voting. The Rule now prohibits brokers from voting on a discretionary basis for any of the matters set forth above.

Previously, on September 9, the SEC approved, also on an accelerated basis, an amendment to the New York Stock Exchange’s proxy voting rule, Rule 452, and corresponding Listed Company Manual Section 402.08, to meet the Dodd-Frank requirements. Rule 452 had already prohibited discretionary voting on the election of directors and on equity-based compensation plans as a result of amendments in 2009.

The SEC has not, to date, adopted rules concerning other "significant matters" with respect to which broker voting would not be allowed but has indicated its expectation that the exchanges would promptly adopt coordinating rules were the SEC to do so in the future.


Dodd-Frank also requires public companies to conduct, at least every three years, non-binding “say-on-pay” votes of their shareholders with respect to the compensation paid to their named executive officers. In addition, at least every six years, public companies must conduct a non-binding vote on whether the say-on-pay vote should be held every one, two or three years. The initial say-on-pay and frequency votes must be held at the first shareholder meeting that occurs more than six months after the enactment of Dodd-Frank.

As a result of the Nasdaq and NYSE proxy voting rule changes, brokers will not be able to vote on a discretionary basis on these say-on-pay and related frequency matters, which will make it more challenging to garner the required votes.

What To Do Now

Re-evaluate CD&A. Companies should now view their Compensation Discussion and Analysis as the primary vehicle through which they can explain the rationales for their compensation programs and make their case to shareholders as to why an affirmative say-on-pay vote is justified. For many companies, this will likely involve a significant change to the approach to CD&A taken in prior years.

Analyze Current Stockholder Base and Voting Behavior. Companies should review the level of broker discretionary voting in past shareholder meetings and consider the extent to which they should engage in increased proxy solicitation and shareholder outreach.