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

54 Pages Posted: 3 Dec 2018 Last revised: 24 Apr 2021

See all articles by Ryan Chacon

Ryan Chacon

University of Colorado, Colorado Springs

Rachel Gordon

Towson University

Adam S. Yore

University of Missouri at Columbia - Department of Finance

Date Written: April 23, 2021

Abstract

We study compensation consultant dismissals to investigate whether consultants recommend outsized pay to earn repeat business. Our results show consultants’ interests are aligned with shareholders’ to appropriately pay the CEO. Boards are more likely to dismiss their consultant when CEO pay is abnormally large, particularly for firms with strong corporate governance. We suggest a possible mechanism; consultants influence pay by advising on the constituency of the compensation peer group. New consultants are less likely to select highly paid peers if the CEO was previously overpaid. Directors earn higher votes in annual elections when they replace their compensation advisors.

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 (April 23, 2021). Available at SSRN: https://ssrn.com/abstract=3281133 or http://dx.doi.org/10.2139/ssrn.3281133

Ryan Chacon

University of Colorado, Colorado Springs ( email )

1420 Austin Bluffs Parkway
Colorado Springs, CO 80918-7150
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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