Executive Compensation, Compensation Consultants, and Shopping for Opinion: Evidence from the UK

51 Pages Posted: 28 Mar 2010 Last revised: 30 Jan 2011

See all articles by Lisa Goh

Lisa Goh

Hang Seng University of Hong Kong - Department of Accountancy

Aditi Gupta

King's Business School

Date Written: February 20, 2010

Abstract

This paper builds on prior research on compensation consultants and executive pay, which finds widespread use of compensation consultants and higher levels of pay and proportion of equity based-pay in firms that employ consultants. Using a sample of FTSE 350 firms from 2002-2008, we provide new evidence that CEOs and executives of firms that switch their main consultant receive higher salary increments in the year of the switch (both absolute and adjusted for median peer levels) and a less risky compensation package, through a higher proportion of bonus and a lower proportion of equity pay. We do not find that executives of firms that increase their number of consultants have higher increases in compensation than non-increasing firms. Our results provide some evidence that companies successfully engage in opinion-shopping between consultants for more favourable compensation packages for CEOs and executives.

Keywords: Executive Compensation, Compensation Consultants, Pay-Performance Sensitivity, Managerial Power, Opinion-Shopping

JEL Classification: J33, M52, G30

Suggested Citation

Goh, Lisa and Gupta, Aditi, Executive Compensation, Compensation Consultants, and Shopping for Opinion: Evidence from the UK (February 20, 2010). Journal of Accounting, Auditing and Finance, Vol. 25, No. 4, pp 607-643, 2010, Available at SSRN: https://ssrn.com/abstract=1577925

Lisa Goh (Contact Author)

Hang Seng University of Hong Kong - Department of Accountancy ( email )

Hang Shin Link
Siu Lek Yuen
Shatin, Hong Kong
China

Aditi Gupta

King's Business School ( email )

30 Aldwych
London, WC2B 4BG
United Kingdom

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