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Paying For Advice: The Role of the Remuneration Consultant in U.K. Listed Companies

Posted by on Wednesday, March 30, 2011 in Articles, Volume 64, Number 2, Volumes.

Compensation consultants are an integral part of the process of determining executive pay in large listed companies. This study reports interview-based research with protagonists in setting executive compensation in twelve FTSE 350 companies and addresses why the consultants are used, what they do, and how they are perceived.

Consultants have several important roles. Firstly, they act as experts, providing market data and advising on plan design and implementation. Because of this role, they not only guide their clients as to the requirements of the market, they also help create those selfsame market practices and norms. They also have a role in liaison with institutional shareholders, either with or on behalf of the committee.

Companies and committees select consultants based on their reputation, with personal contacts playing an important part in the choice. Consultants use impression management techniques to ensure that their reputations remain strong. Reputation is important for all parties, as the use of consultants also acts to legitimize the decisions of the remuneration committee in this increasingly contentious area. However, there is much debate about the consultants’ independence and their practices, which could reduce such legitimacy. This Article considers how the legitimacy is evidenced, and considers the ways in which committees and consultants are working to maintain it.

This Article contributes to the literature on compensation consultants by taking a qualitative approach, providing explanations of current practice which