Management Accounting Section Midyear Meeting

Are ISS Recommendations Informative? Evidence from Assessments of Compensation Practices

• In Event: Corporate Governance II

Abstract

Using detailed information on Institutional Shareholder Services (ISS) assessments of firms’
compensation practices, we examine whether these assessments identify poor compensation
practices as measured by subsequent performance. While prior research provides consistent
evidence of an association between shareholder voting outcomes and ISS recommendations, the
evidence is mixed over whether their recommendations convey information about poor
compensation policies. We find that ISS “Against” recommendations are associated with worse
future accounting performance, consistent with ISS being able to detect suboptimal compensation
packages. However, workload compression has an effect, as we find that the relation between
assessments and future performance is stronger during the off season (i.e. for firms with non-
December fiscal year end).

Authors

• Ana Maria Albuquerque, Boston University

• Susanna Gallani, Harvard University Business School

• Mary Ellen Carter, Boston College