Corporate governance, compensation consultants, and CEO pay levels |
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Authors: | Christopher S Armstrong Christopher D Ittner David F Larcker |
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Institution: | (1) The Wharton School, University of Pennsylvania, 1300 Steinberg-Dietrich Hall, Philadelphia, PA 9104, USA;(2) Graduate School of Business, Rock Center for Corporate Governance, Stanford University, 655 Knight Way, Stanford, CA 94305, USA |
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Abstract: | This study investigates the relation between corporate governance and CEO pay levels and the extent to which the higher pay
found in firms using compensation consultants is related to governance differences. Using proxy statement disclosures from
2,110 companies, we find that CEO pay is higher in firms with weaker governance and that firms with weaker governance are
more likely to use compensation consultants. CEO pay remains higher in clients of consulting firms even after controlling
for economic determinants of compensation. However, when consultant users and non-users are matched on both economic and governance
characteristics, differences in pay levels are not statistically significant, indicating that governance differences explain
much of the higher pay in clients of compensation consultants. We find no support for claims that CEO pay is higher in potentially
“conflicted” consultants that also offer additional non-compensation-related services. |
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