High Pay Based On Fictional Peer Groups

A recent study, Compensation Peer Groups at Companies with High Pay, published by the Investor Responsibility Research Center (IRRC) Institute and PROXY Governance Inc. (PGI) identified at least 15% of the S&P 500 companies with high pay that is not aligned with high performance.  The study reveals that these high paying companies select larger than appropriate peers, in sense of market capitalization and revenue for compensation benchmarking purposes.  From there, the boards of directors of these high paying companies ignore their own made up peer groups when it comes to paying their own CEOs and simply pays them an average of more than double or 103%, above the median of the self-selected peer group.

 

“The data indicate that some companies are ‘fixing the game’ by first choosing larger and better performing companies to be in the peer group against which they measure their CEOs compensation,” said Jon Lukomnik, Program Director of the IRRC Institute.  “Then, incredibly, even the ‘fixed’ rules are ignored to grant compensation more than 100 percent above the self-selected peer group….  Clearly, high CEO pay does not always go hand-in-hand with superior shareholder returns.”