Compensation Consultants: Whom Do They Serve? Evidence From Consultant Changes

51 Pages Posted: 3 Dec 2018 Last revised: 25 Jan 2019

See all articles by Ryan Chacon

Ryan Chacon

University of Missouri at Columbia

Rachel Gordon

Towson University

Adam S. Yore

University of Missouri at Columbia - Department of Finance

Date Written: January 11, 2019

Abstract

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

Chacon, Ryan and Gordon, Rachel and Yore, Adam S., Compensation Consultants: Whom Do They Serve? Evidence From Consultant Changes (January 11, 2019). Available at SSRN: https://ssrn.com/abstract=3281133 or http://dx.doi.org/10.2139/ssrn.3281133

Ryan Chacon

University of Missouri at Columbia ( email )

United States

Rachel Gordon

Towson University ( email )

8000 York Road, ST 100A
Towson, MD 21204
United States

Adam S. Yore (Contact Author)

University of Missouri at Columbia - Department of Finance ( email )

403 Cornell Hall
Columbia, MO 65211
United States
573-884-1446 (Phone)

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