Companies may need to revisit their proxy math: Broker discretionary votes are officially out for say-on-pay proposals.

Per Section 957 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the national securities exchanges are required to amend their rules to prohibit member organizations from voting shares without specific client instructions on matters related to executive compensation.

For proposals included on proxy statements that involve executive compensation matters for which brokers were previously allowed to vote uninstructed shares, NYSE will treat those matters as "may not vote" rulings going forward effective immediately, according to an Aug. 4 information memo.

NYSE said it intends to file an amendment to Rule 452 to prohibit members from voting uninstructed shares if the matter to be voted on relates to executive compensation, including "say-on-pay" proposals, at meetings occurring after July 21 (the date the Dodd-Frank Act was signed into law).

However, NYSE said an exception will be made for meetings on which it has issued a "may vote" ruling prior to July 21. NYSE Amex and NYSE Arca will file identical amendments to their rules.

Rule 452 prohibits brokers from voting uninstructed shares in "non-routine" matters. For instance, the rule was already amended, effective for annual or special meetings as of Jan. 1, 2010, to bar brokers from voting uninstructed shares in connection with the election of directors (excluding companies registered under the Investment Company Act of 1940).

Since brokers historically tended to cast those votes in favor of management, observers say the change could make it tougher for some companies to win shareholder approval of management say-on-pay resolutions, which will become mandatory under the law.

"Issuers may find it more difficult to gain support for compensation-related matters as a result of this pronouncement," says Doreen Lilienfeld, a partner with Shearman & Sterling. She notes that the composition of a company's shareholder base "will likely govern how the broker non-votes are likely to effect voting."

"If a company has a large institutional shareholder base, there will likely be a minimal effect," while companies with larger individual shareholder bases will likely find it more difficult to obtain the necessary votes, as many shareholders will not provide voting instructions to their brokers, says Lilienfeld.???Likewise, Claudia Allen, head of the Corporate Governance Practice Group at Neal Gerber Eisenberg, says, "It can make a difference for some companies, since this has the ability to increase the influence of dissidents and others who may be unhappy with executive pay."

Although Allen notes that say-on-pay votes have only failed at three companies so far, she says, "To the extent there's any dissatisfaction with compensation, it has the potential to be magnified when broker votes are back out."

"It's a mistake to assume because the vote is advisory that it's not important," she says. "It's important for directors to be informed about the issues of concern to the company's shareholders."

As such, she says it's a good idea for companies to analyze their shareholder base to understand "who their shareholders are, the extent to which they're advised by ISS or other proxy advisory firms, and to reach out to shareholders to get a sense of what their hot buttons are on compensation."

Lilienfeld further notes that issuers should revisit the approval standard and the standard for counting votes for the say-on-pay vote pursuant to their bylaws and certificate of incorporation, as well as applicable state law, which can have an impact on the outcome of the vote.

As noted in the NYSE information memo, the Act also gives the Securities and Exchange Commission the authority to make other changes to Rule 452, so stayed tuned.