Compensation Consultants' Conflicts of Interest

December 5, 2007

Following up on a widely publicized request for data sent to selected compensation consulting firms earlier this year, the U.S. House of Representatives Committee on Oversight and Government Reform, chaired by Representative Henry Waxman, held hearings today and released a report on conflicts of interest among compensation consultants. The report can be found at http://oversight.house.gov/documents/20071205100928.pdf. The hearings focused on potential links between the level of executive pay and the use of consultants who perform substantial services other than executive compensation consulting. The tenor of the report is that the provision of these other services results in a conflict, perhaps causing a higher level of executive pay.

In addition to providing details concerning types of fees received by consultants, the report analyzes public disclosure by issuers concerning these potential conflicts. Although the analysis is largely generic, certain issuers (Haliburton, Met LIfe, Pepsico and Johnson & Johnson) are singled out by name. The report concludes that:

“The information provided to the Committee represents the best — and only — comprehensive information currently available on the extent of conflicts of interest among executive compensation consultants. An analysis of this information shows that in 2006, over 100 Fortune 250 companies used compensation consultants that provided both executive compensation advice and other services to the company at the same (sic). In many cases, the consultants hired to provide executive compensation advice were paid millions of dollars by the executives whose pay they were supposed to assess. The information provided to the Committee also shows that many of these conflicts of interest were not disclosed to the investing public in company SEC filings.”

Questions can be directed to your regular contacts at the firm or to any of our partners and counsel listed under Capital Markets in the “Our Practice” section of this web site.

CLEARY GOTTLIEB STEEN & HAMILTON LLP