Are ISS Recommendations Informative? Evidence from Assessments of Compensation Practices

51 Pages Posted: 4 Jun 2020 Last revised: 6 Oct 2020

See all articles by Ana M. Albuquerque

Ana M. Albuquerque

Boston University - Questrom School of Business

Mary Ellen Carter

Boston College - Department of Accounting

Susanna Gallani

Harvard Business School

Date Written: October 5, 2020

Abstract

Using detailed information from the largest proxy advisor in the U.S., Institutional Shareholder Services (ISS), we examine whether proxy advisors’ assessments of firms’ compensation practices are able to identify poor compensation practices as measured by subsequent performance. While prior research provides consistent evidence of an association between shareholder voting outcomes and proxy advisors’ Say-on-Pay recommendations, the evidence is mixed over whether their recommendations are informative about the quality of firms’ compensation practices. We find that ISS “Against” recommendations and negative assessments are associated with worse future accounting performance, consistent with ISS being able to detect low quality compensation packages. However, workload compression has an effect, as we find that the relation between assessments and future performance only occurs during the off season (i.e. for firms with non-December fiscal year ends).

Keywords: Proxy Advisors, CEO Compensation, Say-on-Pay, Institutional Shareholder Voting

JEL Classification: G23, G34, J33, M12

Suggested Citation

Albuquerque, Ana M. and Carter, Mary Ellen and Gallani, Susanna, Are ISS Recommendations Informative? Evidence from Assessments of Compensation Practices (October 5, 2020). Available at SSRN: https://ssrn.com/abstract=3590216 or http://dx.doi.org/10.2139/ssrn.3590216

Ana M. Albuquerque

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
617-358-4185 (Phone)
617-353-6667 (Fax)

Mary Ellen Carter

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Susanna Gallani (Contact Author)

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States

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