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Do compensation consultants drive up CEO pay? Evidence from UK public firms
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Conyon, Martin J., Haß, Lars Helge, Peck, Simon I., Sadler, Graham V. and Zhang, Zhifang (2019) Do compensation consultants drive up CEO pay? Evidence from UK public firms. British Journal of Management, 30 (1). pp. 10-29. doi:10.1111/1467-8551.12307 ISSN 1045-3172.
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Official URL: http://dx.doi.org/10.1111/1467-8551.12307
Abstract
Do 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.
| Item Type: | Journal Article | ||||||||
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| Subjects: | H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HF Commerce |
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| Divisions: | Faculty of Social Sciences > Warwick Business School > Accounting Faculty of Social Sciences > Warwick Business School |
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| Library of Congress Subject Headings (LCSH): | Corporate governance , Corporate governance -- Great Britain, Executives -- Salaries, etc., Executives -- Salaries, etc. -- Great Britain, Compensation management, Compensation management -- Great Britain | ||||||||
| Journal or Publication Title: | British Journal of Management | ||||||||
| Publisher: | Wiley-Blackwell Publishing Ltd. | ||||||||
| ISSN: | 1045-3172 | ||||||||
| Official Date: | January 2019 | ||||||||
| Dates: |
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| Volume: | 30 | ||||||||
| Number: | 1 | ||||||||
| Page Range: | pp. 10-29 | ||||||||
| DOI: | 10.1111/1467-8551.12307 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Reuse Statement (publisher, data, author rights): | This is the peer reviewed version of the following article: Conyon, M. J., Hass, L. H., Peck, S. I., Sadler, G. V. and Zhang, Z. (2019), Do Compensation Consultants Drive Up CEO Pay? Evidence from UK Public Firms. Brit J Manage, 30: 10-29. doi:10.1111/1467-8551.12307, which has been published in final form at https://doi.org/10.1111/1467-8551.12307. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. | ||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||
| Date of first compliant deposit: | 22 July 2019 | ||||||||
| Date of first compliant Open Access: | 30 January 2021 | ||||||||
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