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Economic Characteristics, Corporate Governance, and the Influence of Compensation Consultants on Executive Pay LevelsChris ArmstrongUniversity of Pennsylvania - Accounting Department Christopher D. IttnerUniversity of Pennsylvania - Accounting Department David F. LarckerStanford University - Graduate School of Business June 12, 2008 Rock Center for Corporate Governance Working Paper No. 15 Abstract: This study investigates the relation between the use of compensation consultants and CEO pay levels. Using new proxy statement disclosures from 2,116 companies, we examine claims that pay is higher in clients of compensation consultants, and test whether any pay differences in users and non-users of consultants are due to differences in economic or corporate governance characteristics. We find that CEO pay is generally higher in clients of most consulting firms, even after controlling for economic determinants of compensation. However, when users and non-users are matched on both economic and governance characteristics, differences in pay levels are not statistically significant. These results are consistent with claims that compensation consultants provide a mechanism for CEOs of companies with weak governance to extract and justify excess pay. Finally, we find no support for claims that CEO pay is higher in conflicted consultants that also offer additional non-compensation related services.
Number of Pages in PDF File: 62 Keywords: corporate governance, executive compensation, compensation consultants JEL Classification: G30, M52, J33, J38, J41, C14 working papers seriesDate posted: June 15, 2008 ; Last revised: November 20, 2011Suggested CitationContact Information
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