Remuneration consultants’ advice and its effect on pay

Abstract

Purpose

The purpose of this paper is to investigate the nature of advice that the remuneration consultants offer to the companies on executive pay. It explores how the advice offered affects the level of executive remuneration. Furthermore, it investigates whether the nature of advice offered forms part of the reasons why remuneration consultants have been criticised to be correlated with high executive pay.

Design/methodology/approach

This paper analysis the data obtained from interviewing remuneration consultants from prominent consultancy firms that operate in the UK and the USA.

Findings

This paper demonstrates that remuneration consultants’ advice on executive remuneration is not always objective. The nature of advice depends on whether the consultants have a balance of portfolio of companies (self-interest) or whether they have the courage to stand up to confrontations from the executives (fear of executives). This study shows that the purpose of using remuneration consultants in advising on executive remuneration is defeated. Also, the practice pushes up pay levels.

Research limitations/implications

The research focused on large consultancy firm operating in the UK and/or the USA. Access to the participants was very difficult due to their busy schedules.

Practical implications

This paper demonstrates the effect that lack of best practice on benchmarking is partly responsible for the high executive pay levels.

Social implications

This paper will inform companies on the nature of advice that remuneration consultant’s offer and its effect on pay levels. Secondly, it will provide the shareholders with vital information they require to vote on remuneration policy in the annual general meeting.

Originality/value

This paper demonstrates the effect that lack of best practice on benchmarking is partly responsible for the high executive pay levels. This paper will inform companies on the nature of advice that remuneration consultant’s offer and its effect on pay levels. Secondly, it will provide the shareholders with vital information they require to vote on remuneration policy in the annual general meeting. Lastly, it informs policymakers on the grey areas of practice that requires best practice.

Citation

Ndzi, E. (2015), "Remuneration consultants’ advice and its effect on pay", International Journal of Law and Management, Vol. 57 No. 4, pp. 340-350. https://doi.org/10.1108/IJLMA-03-2015-0014