Compensation Consultants: Whom Do They Serve? Evidence From Consultant Changes

67 Pages Posted: 3 Dec 2018 Last revised: 16 Jan 2024

See all articles by Ryan Chacon

Ryan Chacon

University of Colorado, Colorado Springs

Rachel Gordon

Towson University

Adam S. Yore

University of Missouri at Columbia - Department of Finance

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

Suggested Citation

Chacon, Ryan and Gordon, Rachel and Yore, Adam S., Compensation Consultants: Whom Do They Serve? Evidence From Consultant Changes (December 6, 2023). Available at SSRN: https://ssrn.com/abstract=3281133 or http://dx.doi.org/10.2139/ssrn.3281133

Ryan Chacon

University of Colorado, Colorado Springs ( email )

1420 Austin Bluffs Parkway
Colorado Springs, CO 80918-7150
United States

Rachel Gordon

Towson University ( email )

8000 York Road, ST 100A
Towson, MD 21204
United States

Adam S. Yore (Contact Author)

University of Missouri at Columbia - Department of Finance ( email )

403 Cornell Hall
Columbia, MO 65211
United States
573-884-1446 (Phone)

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