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Corporate Governance, Compensation Consultants, and CEO Pay Levels

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  • Armstrong, Christopher S.

    (University of Pennsylvania)

  • Ittner, Christopher D.

    (University of Pennsylvania)

  • Larcker, David F.

    (Stanford University)

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 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.

Suggested Citation

  • Armstrong, Christopher S. & Ittner, Christopher D. & Larcker, David F., 2010. "Corporate Governance, Compensation Consultants, and CEO Pay Levels," Research Papers 2068, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:2068
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    1. Goergen, Marc & Renneboog, Luc, 2011. "Managerial compensation," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1068-1077, September.

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