REDWOOD CITY, CA (July 13, 2016) — Companies weight CEO pay heavily in comparison to a set of peer companies, and indeed, 95.4% of S&P 500 companies disclosed a compensation benchmarking peer group in their most recent proxy statements, according to a new report from Equilar, Peer Group Composition and Benchmarking 2016.
The report found that a majority of S&P 500 companies—or 53.5%—paid their CEOs between the 25th and 75th percentiles of the peer groups they disclosed. And very few—less than 8%—paid the maximum or minimum in comparison to their disclosed peer groups.
“Over the past few years, proxy advisors have played a role in influencing peer group creation and CEO pay comparisons,” said Patrick Haggerty and Joe Mallin, Partners at compensation consultancy Pay Governance, in comments provided for the Equilar report.
“Because proxy advisors establish their own peer groups to compare a company’s relative CEO pay and total shareholder return—and typically share that information with compensation committee members—many companies have adjusted peer group development to align with those advisory firm opinions,” the Pay Governance consultants said.
Alternative comparisons to proxy-disclosed peers reflect the various viewpoints in the marketplace that investors use to evaluate executive pay. For example, Equilar Market Peers (EMP) identifies the 15 most strongly linked companies within a target company’s larger peer network using analytics and algorithms proven in the social networking space to generate an interconnected network of peer companies consisting of “who you know” and “who knows you.”
When analyzing how companies pay CEOs compared to their Equilar Market Peers, less than half—or 49.3% of S&P 500 companies—paid between the 25th and 75th percentiles. Additionally, 8.6% of companies paid the maximum of their EMP group, and 3.7% awarded CEO pay levels the minimum of their EMP group.
“Multiple peer group comparisons for CEO pay are constructive for investors who are attempting to paint a full picture of their portfolio companies—and for companies who want a better sense of how they are being evaluated by shareholders and proxy advisors,” said Dan Marcec, Director of Content at Equilar. “Analyzing various peer group criteria that exist in the marketplace can help companies prepare for shareholder engagement around executive pay.”
About Peer Group Composition and Benchmarking 2016
In addition to the CEO pay analysis described in this release, the Equilar Peer Group Composition and Benchmarking 2016 report examines how S&P 500 companies construct their proxy-disclosed peer groups. Data includes distributions of peer group size, number of peer groups, criteria used to determine peer groups, whether companies have peers outside the U.S., the most common companies disclosed as peers, and more. Pay Governance offered independent commentary to provide color and context on how companies formulate and utilize peer groups for compensation benchmarking.
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