Do Compensation Consultants Have Distinct Styles?

Abstract

Using hand-collected compensation consultant data, we investigate whether compensation consultants exhibit distinct styles in the determination of CEO pay level and compensation structure. Our tests, which include the use of placebo samples that involve the scrambling of consultants as benchmarks, yield little evidence of idiosyncratic compensation consultant style. However, we do observe style-like effects and some resultant perverse outcomes either when (i) there is greater potential for client firms’ managers to take actions in their self-interest or (ii) consultants face conflicts of interest. Overall, we find evidence consistent with both the “efficient” and “agency” views of CEO compensation contracts.

Keywords: Compensation consultants; Consultant Style; Compensation structure

JEL Classification: G30, G34, J33, M12, M52, M55