The Role and Effect of Compensation Consultants on CEO Pay

Brian D. Cadman · Mary Ellen Carter · Stephen A. Hillegeist

35 citations0/0 files stored

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Corporate Finance and Governance Auditing, Earnings Management, Governance Human Resource and Talent Management

Abstract

We examine the effect of compensation consultants on CEO pay. Using a sample of 292 firms in 2006 randomly selected from ExecuComp, we find that compensation consultants are associated with higher salaries, consistent with the hypothesis that consultants help boards of directors justify excessive CEO pay. However, we also find that the use of a consultant is associated with lower bonuses and total compensation. In addition, we find that when consultants are used, CEO pay has greater sensitivity to performance, particularly negative performance, consistent with consultants devising pay schemes that hold CEOs more accountable for poor performance. Finally, we find that compensation committees are more forthcoming in their disclosure of executive pay when a consultant is used. Together our findings suggest that executive pay schemes reflect (more) efficient contracting when consultants are involved in the compensation process. Perhaps as a result, we find that compensation committees provide more details of such pay packages when they have hired a consultant. Overall, our results are more consistent with the efficient contracting hypothesis than with the rent extraction hypothesis.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 35 citations exist upstream.

References

1999Corporate governance, chief executive officer compensation, and firm performance 1992The investment opportunity set and corporate financing, dividend, and compensation policies 2003Institutional Investors and Executive Compensation 1999The use of equity grants to manage optimal equity incentive levels 1993Additional evidence on the association between the investment opportunity set and corporate financing, dividend, and compensation policies 2002Stock options for undiversified executives 1998Relative valuation roles of equity book value and net income as a function of financial health 2006Pay without Performance

Cited by

2011Paying for Advice: The Role of the Remuneration Consultant in U.K. Listed Companies 2011Corporate Governance and Business Ethics 2008Economic Characteristics, Corporate Governance, and the Influence of Compensation Consultants on Executive Pay Levels 2011Managerial Compensation: Agency Solution or Problem?2015Managing for engagement

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.