February 20, 2020
Pre-IPO Peer Group Selection
– Lynn Jokela
Lots of considerations go into selecting a compensation peer group and proxy advisors tend to select peers based on industry, companies of similar size in terms of revenue and what they call “peers of peers”. Pre-IPO companies though are likely to have different considerations.
This memo from Jim Heim at Meridian discusses the reasons why pre-IPO peer groups should be constructed using different considerations and says that understanding what the benchmark data will be used for impacts selection of the peer group. The memo sets out key compensation actions that a pre-IPO company faces and says that a peer group for a pre-IPO company could be selected by considering the following factors:
– Industry and related sectors (i.e. 2-digit GIC rather than 4)
– Recency of IPO
– Market value at time of IPO
– Size/complexity of organization at time of IPO
– Growth trajectory leading up to the IPO
– Founder status and overall ownership position of management prior to IPO