Do Compensation Consultants Drive Up CEO Pay? : Evidence from UK Public Firms

Conyon, Martin James and Hass, Lars Helge and Peck, Simon and Sadler, Graham 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. ISSN 1045-3172

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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
Journal or Publication Title:
British Journal of Management
Additional Information:
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 This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.
Uncontrolled Keywords:
?? business, management and accounting(all)strategy and managementmanagement of technology and innovation ??
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Deposited On:
23 Apr 2018 12:26
Last Modified:
17 Dec 2023 01:39