Biased Oversight and Government Reform Committee Report Refuted by Academic Researchers

Press Release

A study by academic researchers, "The Role and Effect of Compensation Consultants on CEO Pay," found no substantial evidence that perceived conflicts of interest between firms and compensation consultants who advise on CEO pay is leading to excessive CEO payouts. "We are unable to find widespread evidence of more lucrative CEO pay packages for clients of conflicted consultants despite anecdotal evidence to the contrary," stated the report.

This review refutes conclusions put forth in a recent Oversight and Government Reform Committee Democratic staff report "Executive Pay: Conflicts of Interest Among Compensation Consultants," which argued that such conflicts of interest were driving excessive compensation levels for corporate executives. Republican Members of the committee had been highly critical of the methodology and conclusions reached in the study done by Democrats. In an apparent attempt by Committee Democrats to shield their report from this peer review, the Committee refused the request of Mary Ellen Carter, an accounting professor at the University of Pennsylvania's Wharton School and co-author of the study, for the data the committee used to reach its conclusion. The academic study used data from a sample of 880 S&P 1500 firms while the Democratic staff survey used data from only the Fortune 250.

"Demonizing executive pay won't cure corporate ills or strengthen the performance of company stocks held by pension funds covering millions of Americans," Oversight and Government Reform Committee Ranking Member Tom Davis (R-VA) said. "This new evidence proves executive compensation levels reflect market forces and correlate with company growth and increased stock value. The alleged causal relationship between consultant services and executive pay growth was always based on envy and hollow egalitarianism, not evidence."

"Chairman Waxman has demonstrated a pattern of manipulating information to maximize media exposure and to drive a partisan political agenda in the guise of oversight at hearings," said Oversight and Government Reform Committee Domestic Policy Subcommittee Ranking Member Darrell Issa (R-CA). "Committee Democrats have largely received a pass for conducting investigations that rely on innuendo and unvetted information to generate headlines, but in this instance they have tripped over the facts."

In explaining why the study done by Democratic Staff reached a flawed conclusion, the researchers point to methodology. "A recent report issued by the United States House of Representatives Committee on Oversight and Government Reform suggests that such conflicts may compromise pay," stated the researchers. "However, the study fails to control for economic determinants of pay and therefore its conclusions should be interpreted with caution."

Carter, in summarizing the study for Wharton's online business journal, added that the congressional committee failed to take into consideration a number of variables, including company size. "Bigger and well-performing firms tend to pay their CEOs more," she said.

The study conducted by three academic researchers concluded, "Overall, we do not find compelling evidence that the controversy and accusations regarding the use of potentially conflicted compensation consultants are warranted."

A copy of "The Role and Effect of Compensation Consultants on CEO Pay" and the Republican Response to the Democratic Staff Report are attached.

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