Study: Higher-paid consultants recommend higher CEO compensation

By: Robert Freedman

Regulators tend to see conflicts in cross-selling by multi-service firms, and new research suggests single-service firms might have conflicts, too.

Executive compensation consultants who receive higher fees for their service tend to recommend higher CEO compensation and also get more repeat work, a Journal of Management Accounting Research study, published by the American Accounting Association, found. 

For every 1% increase in average executive compensation consulting fee, or $1,770, CEO compensation triples, to $4,474, the study of 313 publicly-traded corporations found. 

“When compensation consultants receive higher executive compensation fees, they are more inclined to recommend higher CEO pay,” researchers Jeh-Hyun Cho of Arizona State University, Jeong-Hoon Hyun of NEOMA Business School in France, and Iny Hwang and Jae Yong Shin of Seoul National University, Korea said. 

They are also more likely to get repeat business with the client, according to a meta-analysis the researchers conducted on past studies. 

Source: CFO Dive (2020)

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