CEOs Likely to Get Higher Pay With Comp Consultant, Study Finds

Companies using compensation consultants have a tendency to pay their CEOs more, though the pay levels do not seem correlate to increased shareholder return, a new study by The Corporate Library finds.

The Effect of Compensation Consultants: A Study of Market Share and Compensation Policy Advice, was released by the Corporate Library last 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 on the compensation consultant used. Additionally, the report shows that Towers Perrin is the top compensation consultant with a grip on 29 percent of the market share and employed by more than 400 companies surveyed by the Corporate Library.  Coming in second was Mercer Human Resource Consulting, which holds 22 percent market share, and in third, Hewitt Associates.

“Our findings indicate that compensation consultants are associated with companies that pay at levels higher than the market median. These higher levels of pay are in general not associated with higher levels of shareholder return.” -- Alexandra Higgins, The Corporate Library.

Investors have seen compensation consultants play an increasing role in helping boards set and determine executive and board pay, and the increase in the use of consultants has much to do with increased demands for compensation committees to align executive pay with shareholder interests and comply with new disclosure requirements set for the by the Securities and Exchange Commission.

“Our findings do indicate that compensation consultants are associated with companies that pay at levels higher than the market median,” said Alexandra Higgins, author of the report and research associate at the Corporate Library in a statement.  “Further, these higher levels of pay are in general not associated with higher levels of shareholder return.”

The report is available for sale to the general public at the Corporate Library’s website.