Compensation consultants’ reputation, non-compensation consulting services and CEO pay

Audrey Wen-Hsin Hsu

Asia-Pacific Journal of Accounting & Economics, 2020, vol. 27, issue 1, 93-118

Abstract: In this study, we draw on the reputation and product quality literature to examine whether compensation consultants with higher reputation have incentives to provide higher-quality services in terms of CEO pay level and pay performance sensitivity (PPS). Using 1,827 US firm-year observations for 2009 and 2010, we find that consulting firms with a higher reputation, proxied by consultant size, are associated with lower compensation and higher PPS. We also find that the PPS for consultants that also provide non-compensation-related services (NCS) is significantly positive for consultants with a higher reputation, consistent with the reputation protection explanation, and significantly negative for the other consultants with a lower reputation consistent with the conflict of interest argument.

Date: 2020
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DOI: 10.1080/16081625.2020.1686817

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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