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The Incentives of compensation consultants and CEO pay

Author: Cadman, Brian ; Carter, Mary Ellen ; Hillegeist, Stephen A.INSEAD Area: Accounting and ControlIn: Journal of Accounting and Economics, vol. 49, no. 3, April 2010 Language: EnglishDescription: p. 263-280.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: We examine whether compensation consultants’ potential cross-selling incentives explain more lucrative CEO pay packages using 755 firms from the SandP 1500 for 2006. Critics allege that these incentives lead consultants to bias their advice to secure greater revenues from their clients [Waxman, H., 2007. Executive pay: conflicts of interest among compensation consultants. United States House of Representatives Committee on Oversight and Government Reform Majority Staff, December]. Among firms that retain consultants, we are unable to find widespread evidence of higher levels of pay or lower pay-performance sensitivities for clients of consultants with potentially greater conflicts of interest. Overall, we do not find evidence suggesting that potential conflicts of interest between the firm and its consultant are a primary driver of excessive CEO pay.
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We examine whether compensation consultants’ potential cross-selling incentives explain more lucrative CEO pay packages using 755 firms from the SandP 1500 for 2006. Critics allege that these incentives lead consultants to bias their advice to secure greater revenues from their clients [Waxman, H., 2007. Executive pay: conflicts of interest among compensation consultants. United States House of Representatives Committee on Oversight and Government Reform Majority Staff, December]. Among firms that retain consultants, we are unable to find widespread evidence of higher levels of pay or lower pay-performance sensitivities for clients of consultants with potentially greater conflicts of interest. Overall, we do not find evidence suggesting that potential conflicts of interest between the firm and its consultant are a primary driver of excessive CEO pay.

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