Want to keep CEO pay down? Perhaps don't use a compensation consultant

phys.org | 11/17/2015 | Staff
blacky (Posted by) Level 3
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Companies that use compensation consultants end up paying more for their CEOs, according to a new study that peers into the 'black box' of CEO pay at a time when boards are under pressure to justify high payments.

The study, to be published in the upcoming edition of the Australian Journal of Management, and conducted by the University of Technology Sydney (UTS) and Auckland University of Technology, is the first to examine the use of compensation consultants in an Australian setting.

ASX - Companies - Consultant - CEO - Things

It finds that the top 500 ASX listed companies that use a consultant pay their CEO more than those that don't, all other things being equal.

"We took into account the size of the company, profitability, risk, debt levels and corporate and governance structures. Even after controlling for all these factors we still see higher pay on average with consultant use," says lead researcher Dr. Nelson Ma from UTS Business School.

Research - Pay - Consultant - Use - Consultants

But it is not clear, without further research, whether the higher pay associated with consultant use is due to consultants' recommendations or because a company hires a consultant to legitimise higher pay.

Around 30 per cent of companies examined used a compensation consultant to provide a formal recommendation on CEO remuneration. The findings support research from the US and UK that also shows CEOs are paid more when consultants are involved.

Lot - Controversy - CEO - Pay - Anger

"There has been a lot of controversy around CEO pay, and anger over multimillion-dollar remuneration packages, particularly in light of findings from the banking royal commission," says Dr. Ma.

"If a CEO is paid $17 million or $20 million, shareholders want to know it is based on the CEO's hard work creating value, reaching targets and increasing returns, not because they have been able to find ways to line their own pocket," he says.

CEO - Pay - Decisions - Shareholders

"The more we know about CEO pay, the better decisions shareholders...
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