The Advisors' Blog

One point that was made consistently at our fall conference and at our November “special session” on the pay vs. performance rules was that it will be much easier to use a line-of-business index for the TSR comparative disclosure, versus a “benchmarking” peer group. This blog from Infinite Equity shows just how cumbersome the disclosure can get when you have to manually re-balance the market weights and disclose year-over-year changes to a custom index.

This excerpt shares some pros & cons – check out the full blog for illustrative tables & calculations:

Given the additional calculations and complexities involved when creating a peer index some companies may be best served to select an in-line industry index based on the reasons laid out below:

– Rebalancing and weighting of peers is internally adjusted by the publishers of the index, i.e. no manual rebalancing

– If the peer group changes year over year the company does not need to track TSR performance against both the old and current index

In contrast selecting the CD&A peer group as the comparator group provides increased visibility and alignment with how executive compensation is determined, despite the additional rigor involved. However, ultimately it is up to the company to decide the approach that is best for them.

– Liz Dunshee