According to equity-compensation firm Equilar, the recent imbroglio at the NYSE "highlights the importance of peer group selection for CEO compensation analyses."
MORE INFO
Compensation analysis conducted by Equilar.
Equilar, in San Mateo, CA, can be reached via email or at (877) 441-6090.
The firm recently analyzed S&P 100 companies to uncover trends regarding how the
largest corporations in America are selecting their peer groups when
benchmarking CEO pay, and discovered that companies are disclosing more.
Findings
Among the firm's key findings were the following:
Greater Disclosure
Equilar identified a general trend towards increased disclosure of peer group companies
for benchmarking purposes.
Forty-one percent of S&P 100 companies
changed the disclosure of their peer group over the two most-recent fiscal
years. By a ratio of almost three to one, companies increased the specificity
of disclosure regarding peer groups.
Disclosure Varies
The level of disclosure varied widely. At the high-end of the
disclosure spectrum, 11 percent of companies provided actual company names that were
included in their benchmarking analysis.
A few examples of how
companies described their peer groups were:
"Comparable companies"
"Significant, global industrial/service corporations"
"Large and high-performing industry competitors: Abbott, AstraZeneca,…"
(ten other competitors listed)
General & Industry Peers
According Equilar's analysis, more companies are benchmarking CEO pay against a peer group that
includes a complement of both general peers and industry-specific peers.
General peers are determined by criteria such as
market capitalization or revenues; industry-specific peers are those that are considered the same industry or included in the same market index).
"This trend may be tied to the fact that domain
experience is becoming less critical as more CEOs are hired from outside their
industries," stated the study. "In addition, as consolidation has swept various industries, there
appear to be fewer relevant peers against which to compare."
Related to general vs. industry peers, Equilar found:
Forty-three percent of S&P 100 companies used both a general peer
group and specific industry peer group for benchmarking purposes.
A typical example was: "Pharmaceutical, medical device, and biotech industries
included in S&P's 500 Health Care Index, as well as other large
non-health care companies of similar size and scope."
Thirty-one percent used a general peer group ONLY.
An example of a general peer group comparative disclosure is: "General Industry with revenue comparable to the level of the
company."
Twenty-six percent identified specific industry peer group ONLY.
Example: "Companies within the S&P Aerospace/Defense Index."
Hard Numbers
Among the 21 S&P 100 companies that disclosed the number of
companies against which they benchmarked, the median number of peer group
companies was 15.
Those values ranged from three companies (Harrah's Entertainment) to as
many as 600 companies (Medimmune).
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