Big or Small: Compensation Consultant Selection, Switch and CEO Pay

Posted: 7 Jan 2011 Last revised: 8 Mar 2012

See all articles by Naqiong Tong

Naqiong Tong

Peking University

Wei Cen

Peking University - HSBC Business School

Date Written: August 2011

Abstract

Using a sample of U.S. S&P 1500 firms from 2007-2009, we provide new evidence showing that CEOs of firms engaging BIG6 consultants receive lower equity payments and lower total compensations compared to that of firms engaging SMALL consultants. In addition, we also find that a switch in a firm’s compensation consultants influences its CEO pay via two directions. When a firm switches its consultant from SMALL to BIG6 consultants (SMALL to BIG6), its CEO receives lower bonus, lower equity and lower total compensation. By contrast, when a firm switches its consultant from BIG6 to SMALL consultants (BIG6 to SMALL), its CEO receives higher salary, higher bonus, higher equity and higher total compensation. Our evidence supports the argument that big consultants tend to design more optimal contract to reduce CEO’s “excess pay” with their superior expertise on pay structure and concerns of high reputation cost.

Keywords: Executive Compensation, Compensation Consultant, Conflicts of Interest, CEO Pay, board of directors, corporate governance, disclosure

JEL Classification: D23, G32, G38, J33, J44, M14, M52

Suggested Citation

Tong, Naqiong and Cen, Wei, Big or Small: Compensation Consultant Selection, Switch and CEO Pay (August 2011). Available at SSRN: https://ssrn.com/abstract=1735511 or http://dx.doi.org/10.2139/ssrn.1735511

Naqiong Tong (Contact Author)

Peking University ( email )

PHBS Business School
China
86-755-2603-2535 (Phone)

Wei Cen

Peking University - HSBC Business School ( email )

HSBC Business School, Peking University
University Town, Nanshan District
Shenzhen, Guangdong
China

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