December 11, 2017
Peer Groups: How to Choose
– Broc Romanek
It can be tricky to build – and maintain – a solid executive pay peer group (or groups). ISS looks at industry profile, size & market cap – but that doesn’t always yield a representative group. This recent Equilar memo gets into the details of current trends and offers some ideas for comp committees. Here’s a teaser:
Companies most often disclosed similar industry classifications as criteria for peer group inclusion, with 442 companies in the Equilar 500—an index of the 500 largest U.S. public companies by revenue—naming this as a deciding factor in peer assessment. Revenue followed as the second-most popular peer group criteria, with talent being another common factor.
“Over the past few years, we have seen peer group development often include an increased focus on operating characteristics of a company, such as profit margin or percent foreign revenue, in addition to standard size screens such as revenue or market capitalization,” said Margaret Engel and Matt Vnuk of Compensation Advisory Partners.
Over the years, I have blogged quite a bit about using peer groups to set executive pay. Check out our “Peer Group Practice Area” and “Benchmarking” Practice Area for more resources…