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by Vault Consulting Editors | December 07, 2007

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A congressional study issued Wednesday by the House Government Oversight Committee reports that compensation consultants have "pervasive" conflicts of interest that seem to result in inflation of executive pay. Many compensation consulting firms do other, more lucrative work for these companies, and the study suggests that this other work can create incentives for consultants to recommend higher pay packages. The committee's chairman, California Democrat Henry Waxman, noted that consultants may suggest higher executive pay in the hopes that the higher-ups will then reward them with additional business. The study also found that average CEO pay was 67% higher at companies whose consultants had the largest potential conflicts from other business, compared with those whose consultants had no conflicts. Roughly 45% of the 250 largest U.S. companies received executive pay advice from consultants providing other services to the company.

It's not surprising that both compensation consulting firms and Republicans called the findings "unreliable" and misleading, with Republicans continuing the rally call for dinimished interference by Congress in corporate decision making.

Click here to watch a video of the hearing.

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Filed Under: Consulting

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