By Kateryna Kyryllova. As companies rely more on performance-based awards for executive compensation, they are required to disclose more details about their compensation policies. In order to maintain transparency, companies are increasingly using peer group benchmarking to provide shareholders with context and market practice for equity compensation in their industry.
According to Equilar’s S&P 1500 Peer Group Report, 89.8% of S&P 1500 companies disclosed peer groups in their most recent proxy statements, an increase of 8.4 percentage points over 2013. On average, peer groups consist of 16 to 20 companies and are chosen based on the industry, company size/revenue, and market capitalization.
Source: Equilar – 2015 Peer Group Benchmarking: An Analysis of S&P 1500 Companies
Equilar explains that “the company’s relative place in its peer group is a highly important factor when looking at their benchmarking policies. The median S&P 1500 company was in the 46.2nd percentile in terms of Chief Executive Officer Total Direct Compensation (TDC).”
Disclosing executive compensation information is becoming increasingly complex. With the adoption of the Say-On-Pay rule by the SEC in 2011, companies are required to conduct a separate shareholder advisory vote to approve the compensation of executives. (Read more about Say-On-Pay rule implications in our white paper.) And the forthcoming Pay Ratio disclosure rule is adding even more complexity by requiring companies to disclose the median worker pay and all elements for its calculation.
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Companies need to adopt efficient and effective methods for researching public filings. For example, there are disclosure research tools that allow you to quickly locate relevant information from your peers’ disclosed metrics to establish your own best practices and benchmarks. Start your 30-day free trial of Certent Disclosure Research today, and streamline your peer benchmarking process.
Also, read this post to see how you can improve the quality of your filings by implementing precedent research, or download this white paper to learn how disclosure benchmarking can improve your company’s overall business strategy.