Firm Responses to Proxy Advisor Recommendations: Evidence from Supplemental Proxy Filings

Proxy advisors (PAs) play a central role in shareholder voting, with negative recommendations resulting in significant voting dissent. We study firms' decisions to issue supplemental proxy filings (DEFA14A) in response to PA recommendations to vote against Say-on-Pay (SOP) proposals. These filings are infrequent-about 11% of firms with unfavorable SOP recommendations file DEFA14As. However, the filings are substantial in length, discussing compensation design and pay-performance alignment, and outlining disagreements with PAs' peer group choices. The market reacts positively to DEFA14As filed in response to the most severe PA concerns. For 8% of filing firms, PAs change their Against recommendations to For, boosting SOP voting support by more than 20%. Filings do not improve voting absent a recommendation change. We conclude that while some DEFA14As communicate favorable information to the market and are successful in changing PAs' recommendations, their effectiveness is limited, likely reflecting structural issues with the proxy voting process.