Given the scrutiny on executive compensation in recent years, it
is critical to make sure that your company's executive pay
reflects its performance and aligns with the market. Therefore, it
is essential for companies to have an appropriate peer group for
performance benchmarking, compensation program design and other
compensation decisions.
There are two types of peer groups companies should consider:
compensation peer group and performance peer group. Compensation
peer group is used as an input to design short- and long-term pay
programs, to determine base salary ranges, annual incentive targets
and long-term incentive award mix, to assess the competitiveness of
total direct compensation awarded to executives, and sometimes, to
assess the talent and recruitment practices. The performance peer
group is used to measure the company's relative performance to
determine the payout of awards, typically long-term incentives.
Whether a company uses only the compensation
