The Role and Effect of Compensation Consultants on CEO Pay
Speaker
Abstract
| We examine the effect of compensation consultants on CEO pay using a sample of 880 firms from the S&P 1500for fiscal year 2006. The use of compensation consultants is controversial as critics contend their true role is to aid in securing excess compensation for CEOs. We find evidence of greater compensation in the presence of a compensation consultant consistent with this rent extraction role. However, we find no evidence of less pay-performance sensitivity when compensation consultants are hired. Because firms that hire consultants are economically different from firms that do not, we examine, within the sub-sample of firms using consultants, whether there is greater rent extraction for clients of consultants with potentially greater conflicts of interest. Despite a variety of specifications, we are unable to find widespread evidence of more lucrative CEO pay packages despite anecdotal evidence to the contrary. Overall, we conclude from our findings that the potential conflict of interest between the firm and consultant is not a primary driver of excessive CEO pay. |
| Contact information: |
| Paolo Perego |
