Do Compensation Consultants Enable Higher CEO Pay? A Disclosure Rule Change As a Separating Device

49 Pages Posted: 23 Sep 2014 Last revised: 1 May 2017

Jenny Chu

University of Cambridge - Judge Business School

Jonathan Faasse

Independent

P. Raghavendra Rau

University of Cambridge

Date Written: April 29, 2017

Abstract

We investigate the impact of a firm’s compensation consultant choice on executive compensation by examining shifts in consultant choice following a 2009 US Securities Exchange Commission requirement that firms disclose fees paid to compensation consultants for both consulting and other services. We show that the disclosure rule change acted as a separating device distinguishing firms likely to have used compensation consultants to extract rents from shareholders from firms that were likely to have used consultants to optimally set pay. We conclude that not all multiservice consultants are conflicted while not all specialist consultants are guardians of shareholder value. Our study provides a more nuanced view of the association between compensation consultant choices and executive pay.

Keywords: Executive compensation, disclosure, governance, regulatory changes

Suggested Citation

Chu, Jenny and Faasse, Jonathan and Rau, P. Raghavendra, Do Compensation Consultants Enable Higher CEO Pay? A Disclosure Rule Change As a Separating Device (April 29, 2017). Available at SSRN: https://ssrn.com/abstract=2500054 or http://dx.doi.org/10.2139/ssrn.2500054

Jenny Chu

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Jonathan Faasse

Independent ( email )

No Address Available

P. Raghavendra Rau (Contact Author)

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

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