Companies using compensation consultants have a tendency topay their CEOs more, though the pay levels do not seem correlate toincreased shareholder return, a new study by The Corporate Library finds.
The Effect of Compensation Consultants: A Study of MarketShare and Compensation Policy Advice, was released by the Corporate Librarylast week, and focuses on two parts of the effect of compensation consultants:
- The typical pay practices of companies that use particular consultants
- The relationship between the use of a particular consultant by a company and the company’s total shareholder return.
Among other highlights, the study measured CEO base salary.When compared to the median of peers, base salary ranged significantly depending onthe compensation consultant used. Additionally, the report shows that TowersPerrin is the top compensation consultant with a grip on 29 percent of themarket share and employed by more than 400 companies surveyed by the CorporateLibrary. Coming in second was MercerHuman Resource Consulting, which holds 22 percent market share, and inthird, Hewitt Associates.
“Our findings indicate that compensation consultants areassociated with companies that pay at levels higher than the market median. Thesehigher levels of pay are in general not associated with higher levels ofshareholder return.” — Alexandra Higgins, TheCorporate Library.
Investors have seen compensation consultants play anincreasing role in helping boards set and determine executive and board pay,and the increase in the use of consultants has much to do with increaseddemands for compensation committees to align executive pay with shareholderinterests and comply with new disclosure requirements set for the by theSecurities and Exchange Commission.
“Our findings do indicate that compensation consultants areassociated with companies that pay at levels higher than the market median,”said Alexandra Higgins, author of the report and research associate at theCorporate Library in a statement. “Further, thesehigher levels of pay are in general not associated with higher levels ofshareholder return.”
The report is available for sale to the general public at theCorporate Library’s website.