Representative Henry A. Waxman, the California Democrat who is chairman of the Committee on Oversight and Government Reform, is examining the potential for conflicts of interest among pay advisers who provide other lucrative services to their corporate clients.
In May, he asked the largest firms in the industry for details on their client relationships and the revenues those ties have generated in the last five years.
The firms that received the requests included Hewitt Associates; Watson Wyatt Worldwide; Mercer Consulting, a unit of Marsh & McLennan; and Towers Perrin. The consultants were given a deadline of May 29. As of yesterday, Towers had not provided the requested material.
In a letter sent yesterday to Mark V. Mactas, chief executive of Towers, Mr. Waxman wrote, “Although other firms have made significant efforts to provide complete responses to the committee’s inquiry, Towers Perrin has provided virtually none of the responsive information.
“I regret that we reached this impasse,” Mr. Waxman continued, “and that the committee had to resort to compulsory process to obtain information on whether Towers Perrin’s advice to corporate boards on executive compensation is tainted by conflicts of interest.”
A spokesman for Towers, Joseph P. Conway, confirmed yesterday that the firm had received the subpoena.
“It has always been Towers Perrin’s intent,” Mr. Conway said, “to cooperate with the committee consistent with our commitment to our clients to maintain the confidentiality of their information.
“Towers Perrin is reviewing the subpoena and is in the process of alerting its clients,” Mr. Conway said. “Towers Perrin will respond to the subpoena consistent with our legal obligations.”
He added that the firm had policies and safeguards in place to ensure the objectivity of its professional advice.
In May, Mr. Waxman asked the firms to identify the large companies that they advise on executive pay and to whom they also provide other duties like actuarial services or human resources outsourcing.
He also asked them to document the fees they earned from these services.
As consulting firms have grown more powerful in the pay arena recently, the potential for conflicts has risen. Consultants typically earn far more from actuarial and benefits outsourcing businesses than they do giving pay advice; as a result, critic say, companies hiring the same firm to do both may not be receiving unbiased advice on executive compensation.
The Securities and Exchange Commission does not require corporations to disclose whether the pay consultants they employ also receive revenues from contracts in their other operations.
Congressional investigators are not the only ones interested in receiving more details about possible conflicts among consultants. Investors have begun asking the companies whose shares they own for more disclosure about these ties.
For example, shareholders of Verizon Communications voted at the annual meeting last month on a proposal that would have required it to disclose professional relationships with its current or previous compensation consultants that might taint their independence. The proposal gained support from 47 percent of the shares voted.
When he requested information last month,
Mr. Waxman said that “almost everyone agrees the extravagant increases in
executive compensation make no sense. The question I’m looking at is
whether potential conflicts of interest among compensation consultants and
their corporate clients might play a role in some of the irrational
compensation decisions.”