Compensation Consultants: Whom Do They Serve? Evidence From Consultant Changes
67 Pages Posted: 3 Dec 2018 Last revised: 16 Jan 2024
Date Written: December 6, 2023
Abstract
We investigate whether compensation consultants recommend excessive pay to earn repeat business by studying consultant changes. Our results show consultants’ interests are aligned with shareholders’ to appropriately pay the CEO. Boards dismiss consultants when pay is abnormally high, but powerful or poorly monitored CEOs interfere with such disciplinary turnover and weaken the relation. Peer groups are more likely to change with new consultant appointments. New consultants are less likely to include highly paid executives in the compensation peer group and CEO pay falls following the change. Directors earn higher votes in annual elections when they replace their compensation advisors.
Keywords: compensation consultants, peer groups, executive compensation, CEO pay, director elections, corporate governance
JEL Classification: G30, G34, J33, M52
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