Consulting Conflicts?

Today is the deadline for submitting comments on a host of changes proposed by the SEC regarding executive compensation, proxy disclosure, shareholder rights and compensation consultants. See the governmentï's link here: http://sec.gov/rules/proposed/2009/33-9052.pdf

Of particular concern is potential for conflicts of interest where the same or affiliated consultant performs duties for management (i.e. consulting on benefits, insurance, etc.) and for the Board of Directors (i.e. consulting on management's compensation). A 2007 House of Representatives Committee reported that compensation consultants can earn fees almost 11 times more for providing "other services" than they were paid for providing executive compensation advice. See report here: http://oversight.house.gov/documents/20071205100928.pdf The report goes on to purport that there appears to be a correlation between the extent of a consultant's dual role in a company and the level of CEO pay.

Many of the larger firms that do offer "other services" besides executive compensation consulting have stated that they have built-in preventative measures that limit the potential for any conflict to occur. However, is the perception of a conflict enough to cause concern? The proposed SEC changes would require companies that hire the same or affiliated consultants to perform both functions to disclose the work performed and the fees paid in those instances.