Remuneration Committees, Pay Consultants and the Determination of Executive Directors' Pay

Abstract

This paper explores how B oard R emuneration C ommittee ( R emco) decisions about executive pay are influenced by pay consultants. Drawing on resource dependency theory and case study evidence from five companies, the paper illuminates the complexities of the pressures and processes confronting both R emcos and pay consultants in the determination of executive pay awards. In contrast to ‘managerial power’ arguments, it demonstrates that the R emcos are proactive in managing pay policy, conscientious in seeking to ensure that pay is appropriate and not over‐generous, and that pay consultants are independent and take their instructions entirely from the R emco. Nevertheless, R emcos' understandings of the wider pay environment, informed by the comparative data supplied by pay consultants, constructs a climate in which the R emcos come to perceive a need for periodic upward pay adjustments to ensure that executive remuneration is consistent with external benchmarks if they are to avoid recruitment and retention problems.