The Advisors' Blog

– Pearl Meyer, Steven Hall & Partners

Recently, RiskMetrics canvassed some compensation consultants about whether they would find a peer benchmarking tool useful when helping to set executive pay levels. While I appreciate RiskMetrics’ desire to expand its services, their concept ignores the fact that peer group selection is not automatic and requires experienced analysis and judgment of numerous factors, many unique to each company.

To name just a few, in addition to industry and size (parameters that vary based on the nature of the business), we consider organization structure, financial structure, corporate strategy, performance metrics, ownership, global presence, make vs. buy/outsource, distribution channels, internal growth vs. acquisitions, etc.

I am also concerned that RiskMetrics’ fourth party automatic selection will require companies, as well as their consultants, to defend their selections vs. those of RiskMetrics in the event of a challenge, especially litigation.

Perhaps most important, I’ve also reviewed RiskMetrics’ historic selection of peers in numerous voting advisory reports and find them questionable – if not invalid – with respect to both pay and performance comparisons. Let me know what you think.