Proxy Advisors' Recipe for Compensation Analysis

[摘要] I explore a novel setting in which ISS, the most prominent proxy advisor, has partnership arrangements with compensation consultants (;;partner consultants”). I find that firms that engage partner consultants reduce the incidence of ISS negative recommendations for say-on-pay and equity compensation plan proposals by 21% to 30%, compared to the unconditional probability. In addition, these firms provide roughly 7% higher compensation to their CEOs. My results also show that, when voting for say-on-pay proposals, shareholders of firms that engage partner consultants discount positive recommendations from ISS. Overall, my findings are consistent with firms obtaining incremental information about the compensation model of ISS by engaging partner consultants. Firms exploit this information to reduce the likelihood of an ISS negative recommendation, while increasing executive compensation for what appears to be opportunistic reasons. The findings suggest a conflict of interest in which ISS benefits from partnership arrangements that could ultimately hurt shareholders.

[发布机构] Rice University

[效力级别] advisors