Julie Connelly’s February 09, 2010 article in Corporate Board Member “Transparency Time for Compensation Consultants’ Own Compensation” really got our Editorial Board talking.
Connelly says: “[The] Fury over excessive executive compensation is beating up on the pay consultants too.” We agree, and found our conversation ranging from the criteria to select an executive comp consultant to whether comp consultants or their firms might find themselves as defendants in shareholder lawsuits over excessively risky behavior that might be seen to be encouraged by executive compensation programs.
The SEC’s new rules around disclosure have driven many public companies to avoid any suggestion of conflict by finding an independent compensation consultant, despite the fact that, as the article points out: “Doing other business for the company when you consult on executive compensation hasn’t been outlawed… It just has to be disclosed.”
Most public companies do not want to raise any suspicion of conflict, and most multi-service firms do not want to have the fees their clients pay for services disclosed. (According to the Hewitt letter to the SEC the argument against fee disclosure is something about it being “Proprietary pricing data [which] represents critical market intelligence [that] … competitors could use to potentially underbid us for existing and potential projects.” And, gosh, we guess Hewitt wouldn’t want to give their clients that kind of an advantage!)
At one time, hiring a multi-service firm for compensation advice was about the safest choice a Board could make. It didn’t matter that the consultant often delivered the same cookie-cutter advice to every client. The mere presence of the multi-line was essentially considered a “seal of approval”, and the company could turn to shareholders and say: “We are doing it right”.
Now a new age has dawned
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