Compensation Consultants: Whom Do They Serve? Evidence From Consultant Changes
51 Pages Posted: 3 Dec 2018 Last revised: 25 Jan 2019
Date Written: January 11, 2019
We use compensation consultant turnover to investigate optimal or excessive CEO compensation recommendations by consultants. Prior literature contends that consultants issue outsized pay recommendations in order to achieve repeat business; we present evidence suggesting their interests are, instead, aligned with shareholders’ desire to appropriately pay the CEO. We find that boards are more likely to dismiss their consultant when CEO pay is abnormally large. These pay-related switches are associated with a decrease in CEO compensation the following year and are concentrated at firms with stronger corporate governance. Lastly, directors representing shareholders’ interests are rewarded with higher votes in annual elections.
Keywords: compensation consultants, executive compensation, director elections, corporate governance
JEL Classification: G30, G34, J33, M52
Suggested Citation: Suggested Citation