Compensation Consultant Fees and CEO Pay

48 Pages Posted: 8 Jun 2015

See all articles by Jeh-Hyun Cho

Jeh-Hyun Cho

Arizona State University (ASU) - School of Accountancy

Jeong-Hoon Hyun

Chung-Ang University - College of Business Administration

Jae Yong Shin

Seoul National University - College of Business Administration

Date Written: June 8, 2015

Abstract

While compensation consultants are known to play an important role in the design of executive compensation contracts, evidence on the effect of compensation consultants on CEO pay is mixed. Using a sample of 3,198 compensation consultant engagements and 576 executive compensation consulting fee observations from S&P 1500 firms for fiscal years 2009 to 2011, we examine the relation between executive compensation consulting (EC) fees and non-EC fees paid to executive compensation consultants and CEO pay. We find that CEO pay is higher when compensation consultants receive higher EC consulting fees. Additional analysis suggests that compensation consultants recommend higher CEO pay when they receive greater than expected fees for EC consulting. We further find that the positive association between EC fees and CEO pay is driven largely by weakly governed firms. We find limited evidence, however, that consultants’ cross-selling incentives are associated with greater CEO pay.

Keywords: Compensation consultant, Consulting fees, Abnormal fees, CEO Pay

JEL Classification: J33, J44, M41, M52

Suggested Citation

Cho, Jeh-Hyun and Hyun, Jeong-Hoon and Shin, Jae Yong, Compensation Consultant Fees and CEO Pay (June 8, 2015). Available at SSRN: https://ssrn.com/abstract=2615675 or http://dx.doi.org/10.2139/ssrn.2615675

Jeh-Hyun Cho

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

Jeong-Hoon Hyun

Chung-Ang University - College of Business Administration ( email )

221 Hukseuk-Dong
Seoul 156-756
Korea

Jae Yong Shin (Contact Author)

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

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