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Most companies benchmark to peers one-half to two times their size.
In determining competitive executive pay, compensation committees at the largest U.S. public corporations use peer groups with an average group size of 24, according to an analysis of peers disclosed by Fortune 500 firms.
As attention to executive pay remains high, the government and the news media have magnified their focus on granular details of the executive compensation equation, according to the report by Equilar, a compensation benchmarking and research provider. All aspects of the pay package are under greater scrutiny, including the process behind setting pay.
One important component of this process is peer group determination. Companies choose peer firms against which to measure and benchmark their compensation, ensuring that their pay remains at a competitive level for executive talent. The companies selected to make up the peer group have a significant impact on the ultimate level and form of pay for executives.
The Securities and Exchange Commission (SEC) requires public corporations to list all peer companies used as part of the pay determination process. In addition, the SEC has requested additional details regarding the process employed in selecting a peer group.
Equilar's Fortune 500 Peer Group Reportfinds that:
• Among the Fortune 500, 27.2 percent of peer groups have between 16 and 20 companies listed.• The average peer group size is 24, while the median size of peer groups is 19 companies.• Most companies benchmark to peers one-half to two times their size.• 24 percent of companies named as peers show up as peers of peers (second-degree peers).• Most companies are used in a peer group at least 10 times.
• Among the Fortune 500, 27.2 percent of peer groups have between 16 and 20 companies listed.
• The average peer group size is 24, while the median size of peer groups is 19 companies.
• Most companies benchmark to peers one-half to two times their size.
• 24 percent of companies named as peers show up as peers of peers (second-degree peers).
• Most companies are used in a peer group at least 10 times.
The industries with the largest average number of stated peers in a group were:
• Industrials, with 35.• Utilities, with 28.• Services along with technology, each having 26.
• Industrials, with 35.
• Utilities, with 28.
• Services along with technology, each having 26.
Stephen Milleris an online editor/manager for SHRM.
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