Do compensation consultants enable higher CEO pay? A disclosure rule change as a separating device
Institute for Operations Research and the Management Sciences
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Chu, K. J., Faasse, J., & Rau, R. (2018). Do compensation consultants enable higher CEO pay? A disclosure rule change as a separating device. Management Science, 64 (10), 4915-4935. https://doi.org/10.1287/mnsc.2017.2845
We investigate the impact of a firm’s compensation consultant choice on executive compensation by examining shifts in consultant choice following a 2009 US Securities Exchange Commission requirement that firms disclose fees paid to compensation consultants for both consulting and other services. We show that the disclosure rule change acted as a separating device distinguishing firms likely to have used compensation consultants to extract rents from shareholders from firms that were likely to have used consultants to optimally set pay. We conclude that not all multiservice consultants are conflicted while not all specialist consultants are guardians of shareholder value. Our study provides a more nuanced view of the association between compensation consultant choices and executive pay.
External DOI: https://doi.org/10.1287/mnsc.2017.2845
This record's URL: https://www.repository.cam.ac.uk/handle/1810/269563