Evidence on compensation consultant fees and CEO pay

Abstract

Regulators and previous research have expressed concern about the effect of compensation consultants on CEO pay. We use the Australian setting, where fees for both compensation and other consulting services supplied by compensation consultants are mandated disclosures for all firms, to provide evidence on the role of compensation consultants on CEO pay. We find that the use of compensation consultants or remuneration advisers, fees for compensation services and positive residual compensation service fees are associated with higher CEO pay. In contrast, both the provision and the proportion of fees from other services provided by compensation consultants are not. Furthermore, these positive associations are not observed when a Big 4 accounting firm is the compensation consultant. JEL Classification: G38, M12, M48, M52.