Do Compensation Consultants Drive Up CEO Pay? Evidence from UK Public Firms

British Journal of Management - Tập 30 Số 1 - Trang 10-29 - 2019
Martin J. Conyon1, Lars Helge Haß2, Simon Peck3, Graham Sadler4, Zhifang Zhang5
1Bentley University, Massachusetts, MA 02452, USA and The Wharton School, University of Pennsylvania, Philadelphia, PA 19104, USA
2Lancaster University Management School, Lancaster University, Lancaster, LA1 4YX, UK
3Weatherhead School of Management Case Western Reserve University 10900 Euclid Avenue Cleveland Oh 44106–7235 USA
4Coventry University, Priory Street, Coventry, CV1 5FB, UK
5Essex Business School, University of Essex, Colchester CO4 3SQ, UK

Tóm tắt

AbstractDo compensation consultants drive up CEO pay for the benefit of managers, or do they design pay packages to benefit firm owners? Using a large sample of UK firms from the FTSE All‐Share Index over the 2003–2011 period, we show a positive correlation between the presence of compensation consultants and CEO pay. Importantly, isolating this effect is somewhat dependent on the endogenous selection of consultants and the statistical modelling strategy deployed. We find evidence that compensation consultants improve CEO compensation design when their expertise is of greater importance (e.g. during the post‐financial crisis period, or for firms that have particularly weak compensation policies). In addition, our findings show that compensation consultants increase CEO pay–performance sensitivity. The balance of evidence supports optimal contracting theory more than managerial power theory, but the authors caution the limits to this verification. We are careful to note that the more compelling evidence for the positive effect of pay consultants on CEOs is based on advanced methods (such as propensity score matching and difference‐in‐differences), and that more standard approaches (such as OLS and fixed effects) are unlikely to reveal the same level of causality of consultants on CEO pay.

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British Journal of Management

Tập 30 Số 1

10-29

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