According to a study from Cambridge Judge Business School, one reason CEO pay is always increasing is because they hire special consultants to tell them that they need higher pay.
The largest American companies routinely hire executive pay consultants “as a justification device for higher executive pay” rather than as the expert quality-control mechanism that investors and observers might imagine pay-setting boards to be, according to new research at Cambridge Judge Business School in the U.K. [...]
The median company that hires pay advisers will subsequently raise CEO pay by 7.5 percent. Companies that seek out specialist compensation consultants pay CEOs almost 10 percent more than similar firms which get pay advice as part of a broader package of business services from a consulting firm.
Hiring someone to tell you that you should be paid more is a great gig if you can get it.
We may typically think of corporate boards as a revolving door that is only interested in their own pay, and they are, but according to the Cambridge study, board-controlled compensation committees are not as generous as consultants.
And why wouldn’t a consultant be more generous? If a consultant’s job is tell you that you’re a genuine Master of the Universe and you should be paid more, why not go all-in?
Good job. Thank you for your service.