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Bender, Ruth --- "Executive Compensation Consultants" [2012] ELECD 614; in Thomas, S. Randall; Hill, G. Jennifer (eds), "Research Handbook on Executive Pay" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on Executive Pay

Editor(s): Thomas, S. Randall; Hill, G. Jennifer

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781849803960

Section: Chapter 16

Section Title: Executive Compensation Consultants

Author(s): Bender, Ruth

Number of pages: 19

Extract:

16 Executive compensation consultants
Ruth Bender


Executive compensation in listed companies is, in many jurisdictions, determined by a
compensation committee comprising independent directors. In most large companies,
that committee is advised by one or more compensation consultants. The consultants
provide advice on the appropriate level of pay and on the types of plan that will be suit-
able. They model likely outcomes, and advise on a variety of other matters including tax,
accounting treatments, regulation and investor sentiment. This use of independent advi-
sors to the compensation committee is not mandatory, but is encouraged by regulators.
This chapter discusses the role of compensation consultants, and summarizes research
into how they have impacted executive pay. It is structured in three sections.
Firstly, we review the role of the executive compensation consultant, considering the
reasons that companies use them: their expertise, and their impact in legitimizing the
compensation committee's decisions. In doing so, we examine how the consultants
operate, and the factors influencing companies' choice of consulting firm.
In the second section we consider executive compensation consulting as an industry,
and review the forces affecting the business of consulting, and the effect that these have
on the consulting firms, their clients, shareholders and regulators. The industry is domi-
nated by a few large firms, of which most are multi-business organizations, earning fees
from other activities in addition to advice on executive compensation. The main factor
determining a firm's ability to attract executive compensation assignments is its reputa-
tion, enhanced ...