The Advisors' Blog

– Liz Dunshee

This Equilar blog says that although there’s high-level consensus around peer group criteria – with most companies using some combination of industry, talent pool, revenue and market cap – the number of criteria actually used varies widely – and so does peer group size. And if your peer group rationale is unconvincing, investors are less likely to accept the benchmarks that underlie all your executive pay decisions.

So it’s not a bad idea to revisit your peer group selection process, with an eye toward the best practices in this FW Cook memo. And while you’re at it, be wary of these common pitfalls:

– Using “aspirational peers”: Attracts negative scrutiny from proxy advisors and shareholders who think the selection is being used to ratchet up benchmark pay

– “Cherry-picking” peers: Focus on objective criteria, don’t select companies to maximize benchmarks or justify certain pay practices

– Focusing on non-executive talent pool: Often, there’s a more diverse universe of companies that compete for non-executive talent, but these companies may not be relevant for executive benchmarking purposes

– Defaulting to valuation peers: Valuation peers often don’t comply with peer group standards used by compensation consultants, proxy advisors or institutional investors