December 10, 2007

Waxman Holds Hearing on Compensation Consultant Conflicts

Last week, Representative Henry Waxman (D-CA), Chairman of the House Committee on Oversight and Government Reform, convened a hearing on the topic of conflicts of interest among compensation consultants. As Broc noted in the blog earlier this year, Waxman had sent letters to a number of compensation consultants seeking information about potential conflicts.

The report released by the Committee’s Majority Staff indicates that over 100 large publicly traded companies hired compensation consultants with “substantial conflicts of interest” in 2006. Further, the Majority Staff reports that over two-thirds of the Fortune 250 companies that hired compensation consultants with conflicts of interest did not disclose the conflicts in their SEC filings (even though no such disclosure requirement exists), and in 30 instances a compensation consultant was identified as independent while being paid to provide other services to the company. The data also shows that consultants were paid nearly 11 times more for providing other services than they were paid for providing executive compensation advice. Finally, the report indicates that there “appears to be” a correlation between the extent of a consultant’s conflict of interest and the level of CEO compensation.

At the hearing, James Reda, Managing Director of James F. Reda & Associates (who submitted this comment letter on the SEC’s 2006 executive compensation amendments calling for disclosure about compensation consultant independence), recommended to the Committee that all fees paid to compensation consultants be disclosed. Representative Waxman echoed this sentiment, indicating that companies should be willing to disclose the full scope of compensation consultant relationships when the consultant is recommending executive pay.

For more information about compensation consultant issues, be sure to check out the “Compensation Consultant” Practice Area on

The Corporate Library Reports on Compensation Consultants

As further evidence that compensation consultants can’t seem to stay out of the spotlight these days, The Corporate Library released a study finding that companies using compensation consultants tend to pay higher CEO compensation, and such compensation levels do not necessarily relate to increased shareholder returns.

In this podcast, Alexandra Higgins of The Corporate Library discusses her recent report on “The Effect of Compensation Consultants: A Study of Market Share and Compensation Policy Advice,” including:

– Why did The Corporate Library conduct this study? What type of data was collected?
– What were the study’s findings regarding boards that used compensation consultants and those that didn’t?
– How about the study’s findings regarding use of consultants and shareholder returns?
– How did the study’s findings vary depending on which consultant was used?

Annual Reports: How to Create Them for an Online World

We have posted a copy of the transcript from our recent webcast: “Annual Reports: How to Create Them for an Online World.”

– Dave Lynn