Compensation Consultants and CEO Pay: UK Evidence

49 Pages Posted: 2 Nov 2008 Last revised: 31 Mar 2010

See all articles by Georgios Voulgaris

Georgios Voulgaris

University of Manchester - Alliance Manchester Business School; Alliance Manchester Business School

Konstantinos Stathopoulos

The University of Manchester - Alliance Manchester Business School

Martin Walker

University of Manchester - Manchester Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2010

Abstract

This paper provides new evidence on the effect of compensation consultants on CEO pay. We show that the use of a compensation consultant has an increasing effect on the level of total CEO compensation, which is consistent with the “ratcheting up” effect of consultants on CEO pay argued by the managerial power approach. However, we also find that this influence on pay levels mainly stems from an increase in equity based compensation. In contrast, we report a negative influence of consultants on basic (cash) pay.We also show that economic determinants, rather than CEO power, explain the decision to hire compensation consultants. The results are robust to several model specifications, different controls for firm and governance characteristics and tests for selection bias. Overall, we offer new evidence suggesting that pay consultants contribute to the solution of the executive pay determination problem and are not part of the problem; our results cast doubts on the conclusions of the managerial power approach regarding the role of compensation consultants.

Keywords: Corporate Governance, Compensation Consultants, Executive Compensation, Managerial Power Approach

JEL Classification: G34, M21, M41

Suggested Citation

Voulgaris, Georgios and Stathopoulos, Konstantinos and Walker, Martin, Compensation Consultants and CEO Pay: UK Evidence (March 1, 2010). Available at SSRN: https://ssrn.com/abstract=1501186 or http://dx.doi.org/10.2139/ssrn.1501186

Georgios Voulgaris (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Alliance Manchester Business School ( email )

Booth street west
Manchester, Greater manchester M15 6PB
United Kingdom

Konstantinos Stathopoulos

The University of Manchester - Alliance Manchester Business School ( email )

AMBS Building
Booth Street West
Manchester, M15 6PB
United Kingdom
+44 161 275 6863 (Phone)
+44 161 275 4023 (Fax)

HOME PAGE: http://www.research.manchester.ac.uk/portal/K.Stathopoulos.html

Martin Walker

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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