Do compensation committees do what they say they do? Evidence from narrative disclosure in proxy statements

The Compensation Discussion and Analysis section in proxy statements provides narrative data on how Compensation Committees define and apply their Compensation Philosophy. However, the extent to which these philosophies—pay-for-performance and the attraction and retention of talented executives—translate into executive compensation practices remains unclear. To address this, we conduct a textual analysis of proxy statements from 2007 to 2016 to examine whether Compensation Committees align executive compensation with their stated philosophies. The findings show a stronger focus on pay-for-performance is linked to higher excess compensation, especially in firms lacking a general counsel among top officers and not employing a compensation consultant.