“C.E.O.’s got envious of fellow C.E.O.’s, which is natural,” says Broc Romanek, a former S.E.C. attorney, and the editor of CompensationStandards.com. “Comp committees would want to pay in the top quartile, and if everybody is paid in the top quartile, the top quartile grows 25 percent each year.” 

Until recently, it was often the very executives whose pay was in question who hired the consultants on behalf of the compensation committee—an arrangement that some felt didn’t exactly encourage those consultants looking for clients to be stingy. Many of Kay’s colleagues in the industry, he says, held their initial consultations with chiefs on the links or during fancy dinners. But in the wake of shareholder outrage over the rise in corporate scandals, that kind of chummy consultant and C.E.O. contact has begun to change. Though some execs still retain a personal consultant to make counteroffers and help negotiate, most compensation committees now hire the consultants who recommend pay packages.

But even that has failed to tamp down the rising controversy over possible conflicts of interest. The executive compensation consulting practices at firms like Mercer, Watson Wyatt, and Hewitt Associates are small divisions of huge companies that also provide a large array of lucrative human resource services such as designing retirement plans and health benefits packages. That, say activist shareholders, is a problem. One widely cited case was the Hewitt-designed compensation package for Verizon chief executive Ivan Seidenberg in which his total pay rose 48 percent the same year that the stock dropped 26 percent and earnings fell 5.5 percent. Last spring, the New York Times noted that Hewitt had also received more than half a billion dollars in revenue from Verizon over the previous eight years, much of it for running the company’s much more lucrative benefits plans.

The revelations infuriated investors. Last October, a coalition of 13 state and union U.S. pension funds with collective control over nearly $850 billion in assets sent a letter to the compensation committees of the top 25 U.S. companies expressing concern about possible conflicts of interest. The coalition asked companies to list all the services their compensation consultants provided to management. And it asked whether the firms had policies in place to prevent consultants from doing other work. At least 18 of the companies replied. Exxon Mobil, General Electric, and Pfizer all have voluntarily begun releasing that information. And in February, Morgan Stanley announced it was replacing Hewitt because of concerns about overlapping consulting ties.

The heightened criticism is part of what’s feeding comments from prominent figures like Diller and Buffett—who complain that the consultants exist only to ratchet up executive pay and then collect fees for doing so. But so far, there’s little sign it’s having any significant negative impact on the business of the consultants.

The newsletter, Compliance Week, surveyed a sample of nearly 250 new proxy statements in April and found that 77 percent reported doing business with a compensation consulting firm. No industry with a reach that widespread can fly under the radar forever.

With Representative Waxman inching toward hearings, institutional investors clamoring for more information, and boards ducking for cover, compensation consulting firms are likely to be a prime target for new regulation in the months ahead.