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Big Companies Divulging More Information About Compensation Consultants

As lawmakers shine a light on possible conflicts of interest among compensation consultants, large companies appear to be going out of their way to disclose more information about their relationships with these firms.

August 5, 2008
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As lawmakers shine a light on possible conflicts of interest among compensation consultants, large companies appear to be going out of their way to disclose more information about their relationships with these firms. In some cases, corporations are even replacing their longstanding comp consultants with independent firms.

These moves, which are being made in part to pre-empt any potentially sticky scenarios—such as shareholder lawsuits or regulatory action—have been tracked in a small sampling by the Corporate Library. The watchdog looked at the filings of nine companies—AT&T, Hewlett-Packard, Home Depot, Merck, Pfizer, Safeway, Time Warner, Verizon and Wal-Mart—and found that during the past two years, most of these companies began to disclose much more information about their compensation consultants than regulators require.

Rather than merely identifying their compensation consultants in proxy filings, the corporations are also revealing whether these advisors provide any other services to the company. Some are also outlining the fees paid to compensation consultants for their services.

“They’re going above and beyond the minimum, that’s without question,” said Paul Hodgson, senior research associate at the Corporate Library. “It shows shareholders that they’re conscious of the potential for conflicts.”

Verizon, for example, now has a formal policy on compensation consultants that prevents such firms from doing any work for the telecom company other than advising its compensation committee.

Hodgson noted that this policy comes after a 2006 New York Times report revealed that Verizon’s former compensation consultant, Hewitt Associates, also provided the company with extensive—and lucrative—benefits consulting.

In fact, Verizon recently disclosed that it had switched from using Hewitt as its compensation consultant in favor of Pearl Meyer & Partners. Safeway, too, recently changed consultants, replacing Towers Perrin with Frederick Cook & Co.

Other companies, such as Hewlett-Packard and Pfizer, also noted that their board’s compensation consultants do not perform any other work for the company. Time Warner and Merck disclosed that their compensation consultants do provide the companies with other services, but added that they now have formal policies aimed at preventing any conflicts of interest.

At the same time, Home Depot revealed that it uses Towers Perrin as its comp consultant and relies on a subsidiary of the firm, Tillinghast, for its insurance and risk management services. But Home Depot also noted that the revenue Tillinghast generates from this assignment is well below 2 percent of Towers Perrin’s total gross revenue—the threshold that Home Depot uses to determine a consultant’s independence, according to the Corporate Library.

iled by Mark Bruno of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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