Many human resource executives and Chief Executive Officers are being misled about the independence of their executive compensation consultant, which could lead to embarrassing situations and potential legal ramifications.
Syzygy Consulting Group has advised its clients to secure independent executive compensation services on an annual basis for their Compensation Committees. Since the early 2000s, Syzygy has suggested this approach for public companies, privately-held companies (especially those with significant investments from publicly-traded companies) and joint ventures.
Publicly-traded companies are now required to ensure that they retain truly independent compensation consultants when seeking market data on executive compensation and expert advice to help Compensation Committees make critical pay decisions. This service must be retained each year and when promoting or recruiting a new executive. Independent consultants should also be used for evaluating company-wide compensation programs (like stock compensation and profit sharing plans).
However, recent shareholder advocacy groups and business reporters are publicly critiquing the relationships between companies and their compensation consultants. They say there “...is...(a) secretive, prosperous and often conflicted world of compensation consultants, who are charged with helping corporate boards determine executive pay..., and who are often cited as the unbiased advisers whenever shareholders criticize a company's pay as excessive. (However), it is a world where consulting fees can reach $950 an hour...and it has grown into a substantial industry where there is little disclosure (or independence) about how executive pay is determined.”
Syzygy Consulting Group's expert competencies reach well beyond executive compensation, but when Syzygy is engaged to provide independent support to a Compensation Committee, Syzygy is bound to independence. As a measure of this independence, Syzygy proactively affirms its intent not to seek any other business from a client outside the scope of its original engagement as approved by the clients’ executive management and Compensation Committee. Syzygy also charges fair and reasonable fees for its services, often agreeing to a fixed budget in advance of its engagements.
Many other public companies (that declined to identify their compensation consultant) swear that their consultants are independent and that the company has ”...ensured there...(are)...no conflicts of interest.'' However, this recently published article (see link below) demonstrates how these claims are often fictitious. It also explains why most compensation consulting firms’ true goals are to secure additional business from their clients, and how they leverage the advice they give to Compensation Committees on executive pay to help “sell in” ancillary services.
Furthermore, Martin Conyon, management professor at the Wharton School of the University of Pennsylvania, says, "There does appear to be slight evidence indicating firms that hire the same consultants for compensation work and services in other parts of the business pay CEOs more than companies that do not use the same consultant for compensation advice and other work."
Syzygy invites you to read this compelling article. Click here to view the article.
Founded in 1995, Syzygy’s principals have more than 50 years of collective experience and ask you to consider Syzygy when seeking truly independent executive compensation expertise.
